MiPhone Inc. currently has oneproduct, high-priced cell phones. MiPhone Inc. has decided to sell a new line ofmedium-priced cell phones. Sales for the new line of cell phones are estimated at $35 million a year. Annual variable costs are 75% of sales. The project is expected to last 5 years. In addition to the production variablecosts, the fixed costs each year will be $4,000,000. The company has spent 1,000,000 in a marketing study that determined the company will lose $10 million in sales a year of its existinghigh-priced cell phones. The production variable cost of these sales is $8 million a year. The plant and equipment required for producing the new line of cell phones costs $10,000,000 and will be depreciated down to zero over 10 years usingstraight-line depreciation. It is expected that the plant and equipment can be sold for $2,000,000 at the end of the project. The project will also require an increase in net working capital of $2,500,000 today that will be returned at the end of the project. The tax rate is 40 percent and the cost of capital is 12%

a. What is the initial outlay(IO) for thisproject?

b. What is the operating cash flows(OCF) for each of the years for thisproject?

c.What is the termination value(TV) cash flow(aka recovery cost orafter-tax salvagevalue, or liquidation value of theassets) at the end of theproject?

d. What is the NPV of thisproject?