Drilling-Easy (DE) Inc. currently has two products, low-priced drills and a line of smart drill bits. DE Inc. has decided to sell a new line of high-priced drills. Sales for the new line of drills are estimated at

$23

million a year. Annual variable costs are

60%

of sales. The project is expected to last

5

years. In addition to the production variable costs, the fixed costs each year will be

$3,000,000.

The company has spent

$1,000,000

in a marketing and research study that determined the company will gain

$12

million in sales a year of its existing line of smart drill bits. The production variable cost of these sales is

$10

million a year. The plant and equipment required for producing the high-priced drills costs

$10,000,000

and will be depreciated down to zero over

10

years using straight-line depreciation. It is expected that the plant and equipment can be sold for

$8,000,000

at the end of the project. The project will also require an increase in net working capital of

$3,000,000

today that will be returned at the end of the project. The tax rate is

20

percent and the require rate of return for this project is

12%.

a. What is the initial outlay (IO) for this project?

The Initial Outlay is

$enter your response here.

(Round your answer to the nearest dollar - no decimals - and commas are required to separate thousands and millions. Use negative sign for negative cash flows - do not use parenthesis).

b. What is the operating cash flows (OCF) for each of the years for this project?

The OCF for each year of the project are

$enter your response here.

(Round your answer to the nearest dollar - no decimals - and commas are required to separate thousands and millions. Use negative sign for negative cash flows - do not use parenthesis).

c. What is the termination value (TV) cash flow (aka recovery cost or after-tax salvage value, or liquidation value of the assets) at the end of the project?

The termination value at the end of the project is

$enter your response here.

(Round your answer to the nearest dollar - no decimals - and commas are required to separate thousands and millions. Use negative sign for negative cash flows - do not use parenthesis).

d. What is the NPV of this project?

The NPV of this project is

$enter your response here.

(Round your answer to the nearest dollar - no decimals - and commas are required to separate thousands and millions. Use negative sign for negative cash flows - do not use parenthesis).