Prepare a response to the following case study problem. Caledonia Services is looking to invest in a new software platform. You have been tasked to decide if the cash flows from the project are adequate: The following expectations for the project have been given to you:

Cost of new servers and building $10,000,000. Depreciation is over five years on a straight-line basis and at the end of five years the servers and building will be sold for an expected $1,000,000.

Fixed costs are $300,000 per year.

Unit software sales from the new platform are expected to be as follows:

Year 1 50,000

Year 2 100,000

Year 3 150,000

Year 4 150,000

Year 5 100,000

The product will sell for $300/unit in years 1-3; $250 in years 4 and 5

Variable costs are $200/unit

At the start of the project Caledonia will need $200,000 in cash for working capital. For years 1-5 additional working capital will be needed equal to 10% of sales revenues in addition to the initial $200,000. The cash flow impact is the netincrease/decrease in working capital in each year. All working capital is released in year 5.

There is a 35% tax rate and the company