Question 10
As part of its planning for the coming Christmas season, Criswell Motorsports is considering whether to expand its product
line that currently consists of skateboards to include gas-powered skateboards. The company feels it can sell 2,500 of these
per year for 4 years (after which time this project is expected to shut down, with solar-powered skateboards taking over).
Each gas-powered skateboard would have variable costs of Rs 100 and sell for Rs. 500; annual fixed costs associated with
production would be Rs 600,000. In addition, there would be a Rs. 2000,000 initial expenditure associated
with the purchase of new production equipment. It is assumed that the straight-line method would be used
(for tax purpose) to depreciate this initial expenditure down to zero over 4 years. Finally, the firms marginal tax rate is 30 percent.
i. What is the initial cash outlay (time 0) associated with this project?
ii. What are the annual net cash flows associated with this project for Years 1 through 3?
iii. What is the terminal cash flow in Year 4?

d