SmartClean Ltd. is considering a new project that produces a new smarter cleaning robot. If accepted, this project can generate additional sales by 5,000 units starting in year 1. Each unit sells for $2,820. The company currently has an existing machine that has been requiring $15 million in operating expenses each year. However, the new project will require the company to incur incremental operating expenses to hire additional personnel, extra security, which are together equivalent to 60% of the incremental revenue every year.

To invest in this new project, the company will need to purchase a new machine, which costs $9.95 million. To get the new machine in running order, there would be a $25,000 shipping fee and a $5,000 installation charge. Additionally, the vendor will also charge a one-off service fee of $20,000, which will be charged at delivery. The new machine will be fully depreciated to a value of zero on a straight-line basis over the 10-year life of the project.

The new project will also require $1 million in additional working capital immediately. This working capital investment will be fully recovered in the last year of the project. The project will not require any other working capital investment during its 10-year life.

The new project will occupy space in the manufacturing plant. The company currently rents a plant at a rental cost of $100,000 per year. The management team believes that the current plant has sufficient capacity to accommodate the new project.

To fund the new project, the company will have to borrow $3 million at 6% annual interest rate from the bank and will pay additional annual interest payment of $180,000 starting from year 1. The company tax rate is 30%.

Required:

(a) Calculate the new project's free cash flows in year 0 and show your calculations. (2 marks)

(b) Calculate the new project's total free cash flows each year, from year 1 to year 9. (3 marks)

(c) Calculate the new project's total free cash flows in the terminal year and show your calculations. (1 mark)

(d) What is the payback period of this project (round to 2 decimal places)?Explain your answer.(2 marks)