Intro

Your company is considering a project to produce electric scooters. You've spent $10,000 already on a market research study that projects the following unit sales:

	A	B	C	D	E
1	Year	0	1	2	3
2	Units	0	1,400	1,540	1,694

After 3 years, the market will be saturated and you will shut down production. Each scooter is expectd to sell for $290 and will incur variable costs of $203 for labor and materials. In addition, you'll incur fixed costs of $81,200 every year.

You will need a new machine to produce the scooters. If you buy the machine now (year 0), it will start producing scooters next year (year 1). The machine costs $79,000 to purchase. The machine can be depreciated straight-line to zero over 5 years and can probably be sold for $39,500 after 3 years.

Your company has a weighted average cost of capital of 14% and a marginal tax rate of 21%.

Attempt 1/3 for 10 pts.

Part 1

What is the after-tax cash flow of the machine in year 3?

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Attempt 1/3 for 10 pts.

Part 2

What is the free cash flow now (year 0)?

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Attempt 1/3 for 10 pts.

Part 3

What is the free cash flow in year 3?

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Attempt 1/3 for 10 pts.

Part 4

What is the NPV of the investment?

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