PROMPT:

Abbyfan is considering developing a Internet of Things appliance, called I O TA.

Sales forecast for I 0 T A is 40,000 units per year. The product will have a viable market for 4 years at an

expected price of $200, after which the product will have zero sales. Production will be outsourced at a

cost of $90 per unit.

To verify the compatibility with the I OT A system, Abbyfan must establish a new lab for testing

purposes. They will rent the lab space, but need to purchase $3.5 million of new equipment. The

equipment will be depreciated using the straight-line method over a 5-year life down to zero and will

have zero resale value at that point.

The lab will be operational in one year, at which point I O T A can ship the product. Abbyfan expects to

spend $2.0 million per year on rental costs for the lab space, as well as marketing and support for this

product.

Abbyfan expects no incremental cash or inventory, but receivables related to | 0 T A are expected to

account for 15% of annual sales and payables are expected to be 15% of the annual cost of goods sold.

Abbyfan's managers believe that the I O T A project has risks similar to its existing projects, for which it

has a cost of capital of 15%. Assume the company's tax rate is 40%.

QUESTION:

what are the projects free cash flows at the end of year 5?