Healthy Foods Company (HFC) currently processes seafood with a unit it purchased several years ago. The unit, which originally cost $500,000, has a current book value of $250,000. HFC is considering replacing the existing unit with a newer, more efficient one.Thenewunitwillcost$ 750,000 and will also require an initial increase in net working capital of $40,000. The new unit will be depreciated on a straightline basis over five years to a zero balance. The existing unit is being depreciated at a rate of $50,000 per year. HFC expects to sell the existing machine today for $275,000. HFCs tax rate is30%. If HFC purchases the new unit, annual revenues are expected to increase by $100,000 (due to increased capacity), and annual operating costs (exclusive of depreciation) are expected to decrease by $20,000. Annual revenues and operating costs are expected to remain constant at this new level over the fiveyear life of the project. Accumulated net working capital will be recovered at the end of five years. HFCs (Simplified) Balance sheet is below:

Assets Liabilities &Equity Current Assets 200,000 Debt 480,000 Fixed Assets 1,000,000 Equity 720,000 HFCs equity beta is 1.3, the cost of debt is 10% and the riskfree rate and market return are 8% and 14% respectively. Answer the following (a) Calculate the projects initial net investment. .

(b) Calculate the annual net operating cash flows for the project.