Project life: 5 years (assume year 0 is 2021)

Sales and COGS begin in year 1 (2022)

Initial capital outlay: $100 million (in year 0)

Equipment depreciates straight-line over 5 years.

Annual sales: $100 million

Annual cost of goods sold: $70 million (which excludes depreciation)

All sales made on 1-year, no-interest credit (this means that, for example, you will receive accounts receivables (A/Rs) first for the $100 million sales in year 1, and then will receive cash in exchange for the A/Rs in year 2, etc.)

Inventory investment: $70 million (one time in year 0)

Corporate tax rate: 20%

(1) Calculate Net Operating Profits After Taxes (NOPAT) from the project from 2021 to 2027

(2)Calculate Free Cash Flows from the project from 2021 to 2027

(3)Compare earnings (NOPAT) and free cash flows from 2021 to 2027. Which is smoother and why?