Problem: The CFO of Casio Industries is considering the launch of a new fuel cell

powered calculator to its existing line of college supplies. The horizon of the project has

been estimated to be $10$ years. The machine that will manufacture the calculators costs

$$3$ million, and will be depreciated using the straight line method to zero book value

over $15$ years. Projected sales are $$500,000$ in year $1,$ $$550,000$ in year $2,$ $$600,000$ in

year $3,$ and so on $($$$50,000$ increase until year $10).$ Annual costs are estimated to be

$20\%$ of the current year sales. The CFO believes that the machine can be sold at the

end of the project for $$600,000.$ Working capital requirements are estimated to be $5\%$

of the following year sales $($so NWC at time $0$ is $5\%$ of sales at time $1,$ and so forth$).$ If

the project is taken, it will use an existing office space for which the company paid

$$550,000$ three years ago, and that can be rented today for $$40,000$ a year, to be paid

at the end of each year. The tax rate is $40\%.$

Questions:

a$)$ Forecast the project $($unlevered$)$ cash flows that you should discount.

b$)$ What is the NPV of the project if the cost of capital $($discount rate$)$ is $10\%?$