Mr Causto Foppi, the owner of FOPPI cycles currently produces mountain bikes but is considering expanding into the production of racing bikes. He has paid $70,000 to a market consultant in order to gain further understanding of the potential demand for the new racing bikes. If the project goes ahead, Foppi will use one of the buildings on his existing property to manufacture the racing bikes. This building is currently leased to a neighbour for $10,000 per annum. If Foppi decides to go on with the new idea, he will require the neighbour to vacate the building. The project will require investment in manufacturing plant and equipment of $450,000. Foppi will use an interest only loan from the bank to help finance the investment. The cost of capital used by Foppi to evaluate investments is 12% Using all this information Foppis accountant; Genaro prepares projected income statements along with notes to the accounts for the new business idea. Projected Income Statements for FOPPI Racing bike project Yr 1 yr 2- 5 Sales $ 290,000.00 $ 290,000.00 Cost of materials used $ 70,000.00 $ 70,000.00 Gross Profit $ 220,000.00 $ 220,000.00 Salaries & Wages $ 40,000.00 $ 40,000.00 Consultation fees $ 70,000.00 Council Rates $ 12,000.00 $ 12,000.00 Interest $ 21,000.00 $ 21,000.00 Depreciation $ 90,000.00 $ 90,000.00 Total Expenses $ 233,000.00 $ 163,000.00 Profit/-loss -$ 13,000.00 $ 57,000.00 Notes to the accounts Revenues and expenses are received/paid in the same period they are earned/incurred. Nil balance of materials and finished goods are maintained. Consultation fees all expensed are actual fees paid. Pre existing council rates are allocated to the racing bike project based on floor space. Straight line method used to depreciate plant and equipment based on useful life of five years and nil residual value Required: You want to apply Net Present Value analysis to determine whether the investment is feasible. Determine which items you would include in the cash flows for this purpose. Indicate the period/s the cash flow applies, and the amount; indicating OUTFLOWS by using ( ) around the number (no spaces). If you believe the item should not be included in the cash flow, then indicate this by using "irrelevant" and "Not applicable"

Item	Cash flow related to time or period / periods (yrs)	Period Cash flow Amount
AnswerMarketing consultationEquipment purchaseSalesCost of materials usedWages / SalariesPre-existing rates allocated InterestDepreciation	AnswerIrrelevantTime = 0Time = 1 onlyTime = 2 through to 5Time = 1 through to 5	$(450,000)
Sales	AnswerIrrelevantTime = 0Time = 1 onlyTime = 2 through to 5Time = 1 through to 5	AnswerNot applicable$290,000$(290,000)$70,000$(70,000)$40,000$(40,000)$12,000$(12,000)$21,000$(21,000)$(90,000)
Cost of materials used	AnswerIrrelevantTime = 0Time = 1 onlyTime = 2 through to 5Time = 1 through to 5	AnswerNot applicable$290,000$(290,000)$70,000$(70,000)$40,000$(40,000)$12,000$(12,000)$21,000$(21,000)$(90,000)
Salaries and wages	AnswerIrrelevantTime = 0Time = 1 onlyTime = 2 through to 5Time = 1 through to 5	AnswerNot applicable$290,000$(290,000)$70,000$(70,000)$40,000$(40,000)$12,000$(12,000)$21,000$(21,000)$(90,000)
Consultation Fees	AnswerIrrelevantTime = 0Time = 1 onlyTime = 2 through to 5Time = 1 through to 5	AnswerNot applicable$290,000$(290,000)$70,000$(70,000)$40,000$(40,000)$12,000$(12,000)$21,000$(21,000)$(90,000)
Allocation of pre existing council rates	AnswerIrrelevantTime = 0Time = 1 onlyTime = 2 through to 5Time = 1 through to 5	AnswerNot applicable$290,000$(290,000)$70,000$(70,000)$40,000$(40,000)$12,000$(12,000)$21,000$(21,000)$(90,000)
Interest on the loan	AnswerIrrelevantTime = 0Time = 1 onlyTime = 2 through to 5Time = 1 through to 5	AnswerNot applicable$290,000$(290,000)$70,000$(70,000)$40,000$(40,000)$12,000$(12,000)$21,000$(21,000)$(90,000)
Depreciation	AnswerIrrelevantTime = 0Time = 1 onlyTime = 2 through to 5Time = 1 through to 5	AnswerNot applicable$290,000$(290,000)$70,000$(70,000)$40,000$(40,000)$12,000$(12,000)$21,000$(21,000)$(90,000)
AnswerResidual ValueNo other relevant cashflowsForegone rent	AnswerIrrelevantTime = 0Time = 1 onlyTime = 2 through to 5Time = 1 through to 5	AnswerNot applicable$290,000$(290,000)$70,000$(70,000)$40,000$(40,000)$12,000$(12,000)$21,000$(21,000)$(90,000)$10,000$(10,000)