Hawaiian Coconut Milkshakes Inc. (HCM) considers the following project. They would like to expand and add a pineapple branch. The firm has paid $95,000 to a consultant in order to find out more about the available projects and possibilities. The marketing department has done extensive consumer research on the potential demand for the new shakes. The total costs for this research was $275,000. Based on this research, you are now considering opening up a Pineapple Juice division in the firm.

The expected sales for this project are $1,600,000 per year for the next 2 years and $1,400,000 for the final (third) year. Accepting the project would mean that you could use an empty storage unit listed on the balance sheet. This storage unit consists of a very large building, for which you paid $50,000 in 1985. This storage unit has been fully depreciated and has a current market value of $90,000, which is expected to remain stable over time regardless of its use.

Accepting the project would also mean that your current coconut shake sales are affected. In fact, you expect to see your current total after-tax cash flows (not revenues!) from coconut shakes (which are currently $1 million per year) increase immediately (as of t=0) by 14% (i.e., $1,140,000 yearly) because of the attention this project draws and they will continue at this higher level as long as the pineapple project is operational). These changes are predicted to be a direct effect of this new project.

Manufacturing plant and equipment for this project (other than the storage unit) will cost $900,000 and will be depreciated according to a straight-line method over the life of the project. The market value of the manufacturing plant and equipment at the end of the project (t = 3) is $175,000 and is expected to level out at this price. Variable costs are projected at 75% of sales. There are no fixed costs associated with the project. Net working capital requirements are $55,000 at the start, and then respectively 12% and 18% of sales in t = 1, and t = 2. At t = 3 the NWC investments will be recovered. The required rate of return on this project is 18% and the corporate tax rate is 34%.

What are the relevant and incremental cash flows associated with all the long-term assets involved and categorized under Capital Spending in years t = 0 through t = 3?

a. -959,400; 0; 0; 174,000

b. -900,00; 0; 0; 115,000

c. -959,400; 0; 0; 234,000

d. -990,000; 0; 0; 265,000

e. -990,000; 0; 0; 205,500

Notes: If possible, please provide the formulas and steps. Our class doesn't use a financial calculator either - only using time value of money math. Thank you!