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please answer all parts (Cabulating froe cash flows) At present, Solartech Skakeboards is considering expanding its product line to include gas-powered skateboards; however, it is
please answer all parts
(Cabulating froe cash flows) At present, Solartech Skakeboards is considering expanding its product line to include gas-powered skateboards; however, it is questionable how well they will be received by skateboarders. Although you feel there is a 70 percent chance you will sell 11,000 of these per year for 10 years (after which time this project is expected to shut down because solar-powered skateboards will become more popular), you also recognize that there is a 15 percent chance that you will only sell 4,000 and also a 15 percent chance you will sel 14,000 . The gas skateboards would sel for $130 each and have a variable cost of $50 each. Regardless of how many you sel, the annual foed cosis associaled with production would be $130,000. In addition, there would be an initial expendture of $900,000 assocated wth the purchase of new production equipment which will be depreciated using the borus depreciation method in year 1 . Because of the number of stores that will need inventory, the working capital requirements are the same regardless of the fevel of sales. This propect will require a one-time initual investment of $40,000 in net working capital; and working-capital investment will be recovered when the project is shut down. Finaly, assume that the firm's marginal tax tale is 25 percent. a. What is the inial outay associated whth the project? b. What are the annual free cash flows associated whth the project for years 1, and 2 brough 9 under each sales forecaut? What are the expected annual free cash fiows for year 1 , and years 2 through 9? c. What is the terminal cash fow in year 10 (that is, what is the free eash fow in year 10 plus any addsonal cash flows associaled with fis lerminason of Ere project)? d. Using the expected free cash flows, what is the propecrs NPV given a required rate of retum of 9 percent? What would the project's NPV be if 11,000 skateboards were sold? a. What is the inital outlay associated wert this project? is (Round is the nearest dollar) Step by Step Solution
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