Raymobile, Inc., a leading producer of snowmobiles, is considering the introduction of a new electric scooter line. Since electric scooters are seen as a fad, and popularity can fade fast, the project is expected to last for five years, and then terminated. The manufacturing facility will cost $9,700,000, and installation costs will cost $300,000. The firm also hired a market research firm to determine the expected demand for the electric scooter. The cost for the market research project was $75,000.

The firm uses a straight line depreciation method over the five year life, so equal depreciation expense each year. The firms tax rate is 25%.

The firm will provide an initial investment to working capital of $100,000 to fund any costs prior to sales taking place. At termination, the firm will liquidate working capital, which is expected to be $200,000 in year 5 (current assets of $300,000 and current liabilities of $100,000)

The firm expects to sell 50,000 units in year1, 100,000 units in years 2 & 3, 70,000 units in year 4 and 50,000 units in year 5. The sales price per unit will be $150 in years 1-4 and $130 per unit in year 5.

The firm anticipates fixed costs to be $500,000 per year and variable costs to be $80 per unit.

The equipment will be sold for scrap metal after year 5 for $750,000.

CALCULATE THE INITIAL INVESTMENT, THE OPERATING CASH FLOWS FOR EACH YEAR (1-5) AND THE TERMINAL CASH FLOW.

CALCULATE THE NPV OF THIS PROJECT USING A REQUIRED RETURN OF 18%. WOULD YOU RECOMMEND THE COMPANY MOVE FORWARD WITH THE PROJECT?