Med$-$Tech $($MT$)$ is considering an expansion to its product line of nanites. The new addition would be specialized to the healthcare industry for the treatment of brain and nervous system related ailments. The goal of this homework is to determine the project$$s cash flows given the following information:

$1.$ Expected sales over the $3$ year life of the project are: $8500,23,000,$ and $20,000$ units, priced at $$80$ per unit. A unit is defined as a batch of $20$ thousand nanites.

$2.$ Production of the new robots requires an investment of $$1\mathrm{.}3$M in new equipment, which would be depreciated using MACRS $3$ year asset class. MACRS rates below.

$3.$ The expansion would use land purchased $5$ years ago for $$500$k$.$ The current market value of the land is estimated to be $$570$k$.$ The projected market value of the property in $3$ years is $$580$k$.$

$4.$ For each period, required working capital is estimated to be $10\%$ of next year$$s sales.

$5.$ The salvage value of the new equipment is projected to be $$120$k in three years.

$6.$ MT has spent $$400$k in R&D and marketing research on the proposed expansion to date.

$7.$ Fixed operating expenses would be $$80$k per year.

$8.$ Variable costs per unit are estimated to be $$20$ per unit made.

$9.$ The firm's marginal tax rate is $30\%$

$10.$ The firm's required rate of return, or discount rate, is $17\%.$

MACRS Depreciation Rates $-3$ Year Recovery Period

Year $1234$

Depreciation $\%33\mathrm{.}3344\mathrm{.}4514\mathrm{.}817\mathrm{.}41$

$1.$Calculate the operating cash flow for this project in year $1($t $=1).$

A quick hint $-$ negative profits give positive tax credits

$2.$Calculate the operating cash flow for the project in its second year $($t $=2).$

$3.$Calculate the operating cash flow for the project in its third year $($t $=3).$

$4.$Since we always start with $0$ net working capital, how much do we need to add? Since it costs cash to build net working capital, is this a cash inflow or outflow?

Calculate the cashflow tied to changes in net working capital for year $0.$

$5.$We now move from the level of NWC needed at t $=0$ to what is needed at t $=1.$ What is this change? Calculate the cash flow tied to this change in NWC at t $=1.$

$6.$Calculate the NWC cash flow for t $=2$

$7.$Calculate the final cash flow tied to net working capital at t $=3.$

$8.$Calculate the net investment of this cost, i$.$e$.,$ the net cash flow at t $=0.$ Remember to use the correct sign.

$9.$ Calculate the net cash flow for the project at t $=1.$

$10.$Calculate the net cash flow for the project at t $=2.$

$11.$Calculate the net cash flow for the project at t $=3.$ Remember that this terminal cash flow includes any salvage values $($by assumption$).$