Marquand Electric, Inc. is trying to estimate the cash flows associated with purchasing and operating an expansion facility for the production of Wi-Fi routers that would replace an old, yet still functioning facility. The new facilitys cost is $8,800,000 and would cost $200,000 in shipping and installation. The company would incur an additional $96,000 for training the staff needed to operate the new facility. A technical feasibility study that cost $45,000 to paid in a month confirmed the efficacy of the proposed facility. The old facility, which is fully depreciated but can be fully operational for the next several years, can be sold for $160,000. The estimated useful life of the new facility is 10 years. However, Randolph anticipates that it would actually operate it for only seven years then sell it. It estimates that the facilitys market price in seven years at $4,300,000. Randolph would use straight-line depreciation for the new equipment. The additional NWC required for the operation of the new facility is estimated at $320,000 initially. The NWC needs would rise to $400,000 by the end of year one, $512,000 by end of year two, $600,000 by end of year three, then go down to $480,000 in year four, then to $286,000 in year five, then to $154,000 in year six. No spoilage or theft is assumed to affect the recovery of the working capital. The new facilitys sales are expected to be 1,300,000 units per year at a price of $84 per unit. The existing facilitys sales are 400,000 units per year sold at the same price. The variable cost stays at the same level of $79/unit and the incremental fixed costs are $2,200,000. The companys marginal tax rate is 25% and its cost of capital is 15%.

1. Estimate the initial net investment (net outlays) associated with the acquisition of the new facility.
2. Estimate the incremental annual free cash flows (FCF) generated by the new facility.
3. Estimate the additional terminal cash flows associated with the new facility.
4. Use the capital budgeting decision criteria to make a decision as to whether the new facility should be purchased. (Assume a standard payback period of 5 years).