SleepBetter is an American company located in Kirkland, WA$.$ The company specializes in selling sheets, pillowcases and comforter when it was founded in $1931.$ Over the years, the company still maintains its main business, which accounts for about $50$ percent of its total revenue. In $1990,$ the company entered into the business of manufacturing mattresses due to stiff competition. You and

your team, the Carson College of Business graduates, are hired by the company's finance department to evaluate a new project for the company.

SleepBetter$$s only mattress type so far is a traditional inner spring called the Beautyrest, and sales have been excellent. SleepBetter$$s main competitor in the mattresses market is TEMPUR$-$SEALY International, Inc $($TPX$).$ SleepBetter$$s Beautyrest is similar to the TEMPUR$-$Adapt but is relatively cheaper. This year, however, SleepBetter wants to incorporate a new high$-$end gel$-$infused memory foam mattresses, the Kingsdown into their lineup. SleepBetter spent $$13,950,000$

to develop the new Kingsdown which features extreme comfort, pressure relief, better breathability and air circulation than the existing Beautyrest. The company has spent a further $$550,000$ for a marketing study to determine the expected sales figures for the new mattresses. SleepBetter can manufacture the new mattresses for $$2,800$ per mattress in variable costs. Fixed costs for the operation are estimated to run $$30$ million per year. The estimated sales volume is $90,870,96,437,94,700,95,432$ and $96,000$ mattresses per year for the next five years, respectively. The unit price of the new mattress will be $$4,499.$ The necessary equipment can be purchased for $$460$ million and will be depreciated on a five$-$year MACRS schedule. It is believed the value of the equipment in five years will be $$300$ million. As previously stated, SleepBetter currently manufactures the Beautyrest. Production of the existing product is expecting to be terminated in three years. If SleepBetter does not introduce the new luxury Kingsdown product, sales of the existing product will be $90,000,89,732$ and $88,679$ mattresses per year for the next three years, respectively. The price of the existing mattress is $$3,000$ per mattress, with variable costs of $$1,350$ each and fixed costs of $$28$ million per year. If SleepBetter does introduce the new mattress, sales of the existing one will fall by $6,000$ mattresses per year, and the price of the existing mattresses will have to be lowered to $$2,799$ each mattress. Net working capital for the project will be $20$ percent of sales and will occur with the timing of the cash flows for the year; for example, there is no initial outlay for NWC$,$ but changes in NWC will first occur in Year $1$ with the first year's sales. SleepBetter has a $35$ percent corporate tax rate. The company has a target debt to equity ratio of $\mathrm{.}6$ and is currently BB$-$ rated $($according to S&P $500$ ratings$).$ The finance department of the company has asked your team to prepare a report to Robert, the company$$s CEO, and the report should answer the following questions.

$1.$ Can you prepare the income statement and the total cash flow $($CFFA$)$ table for this new project? Please use these tables to help explain to Robert the relevant incremental cash flows of this project?