P$12-2($Assume the annual calculated cash flows are equal all $10$ years of the project$)$ Landcruisers Plus $($LP$)$ has operated an online retail store selling off$-$road trucks. As the name implies, the firm specializes in parts for the venerable Toyota FJ$40$ that is know throughout the world for its durability and off$-$road prowess. The fact that Toyota stopped building and exporting the FJ$40$ to the US market in $1982$ meant that FJ$40$ owners depended more and more on re$-$manufactured parts to keep their beloved off$-$road vehicles running. More and more FJ$40$ owners are replacing the original inline six cylinder engines with a modern American$-$built engine. The engine replacement requires mating the new engine with the Toyota drive train. LP$\text{'}$s owners had been offering engine adaptor kits for some time but have recently decided to begin building their own units. To make the adaptop kits the firm would need to invest in a variety of machine tools costing a total of $$700,000.$LP$\text{'}$s management estimates that they will be able to borrow $$400,000$ from the firm's bank and pay $8\%$ interest. The remaining funds would have to be supplied by LP$\text{'}$s owners. The firm estimates that they will be able to sell $1,000$ units a year for $$1,300$ each. The units would cost $$1,000$ each in cash expenses to produce $($this interest and taxes of $$198,000.$ The firm pays taxes equal to $30\%,$ which results in a net income of $$138,600$ per year over the $10$ year expected life of the equipment.

A$.($Part $1)$ What is the annual free cash flow LP should expect to receive from the investment in Year $1$ assuming that it does not require any other

investments in either capital equipment or working capital and the equipment is depreciated over a $10$ year life to a zero salvage and book value?

$($Part $2)$ How Should the financing cost associated with the $$400,000$ loan be incorporated into the analysis of cash flow?

B$.$ If the firm's required rate of return for its investments is $10\%$ and the investment has a $10-$year expected life, what is the anticipated NPV of the investment?