Jamnic Digital Automotive manufactures a variety of electronic products. The company is considering introducing its most exciting product; a new digital instrument panel for customized classic cars. This panel allows the car owner to customize the complete set of instruments for the vehicle. Output display may be analog or digital, with many styles of display using apps that may be purchased, downloaded, and installed with a micro SD card. Your analysts have provided you with the following forecast information for the Fully Customizable Instrument Panel (FCIP):

The project has an anticipated economic life of 5 years.

The company will have to purchase a new machine to produce the new product. The machine has an up-front cost (t = 0) of $2,107,000.

The equipment will be depreciated using the MACRS method using the year convention with a 5 year class life:

t = 1 20.00%

t = 2 32.00

t = 3 19.20

t = 4 11.52

t = 5 11.52

t = 6 5.76

At the end of the project, the expected value (salvage value) of the equipment is $925,000.

If the company goes ahead with the proposed product, it will have an effect on the companys net operating working capital. At the outset, t = 0, inventory will increase by $136,000 , accounts payable will increase by $52,000, and accounts receivable will increase by $41,500. At t = 5, the net operating working capital will be recovered after the project is completed.

The new product is expected to generate incremental sales revenue as follows:

Year 1: $1,200,000

Year 2: 2,500,000

Year 3: 3.250,000

Year 4: 3,100,000

Year 5: 1.575,000

The operating costs, excluding depreciation, are expected to be 59% of the annual sales.

The new product is expected to reduce the after-tax cash flows of the companys other existing products by $175,000 a year (t = 1, 2, 3, 4, and 5).

The companys tax rate is 40 percent.

Jamnic considers this to be a higher risk project.

The before tax cost of debt (r_d) for Jamnic s 5.12%, and the common stock beta is 1.43. The current capital structure (market value) is as follows:

Jamnic Digital Automotive.

Debt $2,450,000

Equity 7,350,000

$9,800,000

Jamnic Digital Automotive uses the firms WACC for average risk projects, it adds 2% for high risk projects. For low risk projects it uses the WACC less 2%.

Your analysts also compiled current market information:

Market risk premium (RP_m): 4%

Risk-free rate (r_RF): 2.25%

(Show your calculations)

What is the initial net cash flow (t=0) for the project?

What are the operating cash flows for time periods 1 through 6?

What is the total terminal cash flow for the project, recognizing the sale of the equipment and the liquidation of NOWC?

On the timeline table below, show the total cash flow amount for each period based on the work you did above?

Period	0	1	2	3	4	5	6
Cash Flow