SPREADSHEET ANALYSIS: CASH FLOW ESTIMATION. FOR THIS AND THE NEXT 9.

Obed Cocoa Farms (OCF) is a manufacturing firm that makes raw cocoa powder. As part of an ongoing expansion program, the company plans to purchase a new processor costing $1 million. An additional $25,000 would be required to modify the equipment for factory use. Shipping and installation charges are $1,200 and $500, respectively. The machine will be used for 4 years. It will be fully depreciated using straightline method over 4 years at the end of which, it is expected to be sold for only 20 percent of its original value.

Once operational, the machine is expected to generate incremental sales of 17,000 boxes of raw cocoa powder per year for 4 years. The per unit sales price in the first year is $75. In the first year, the total incremental operating cost (excluding depreciation) is projected to be 60% of total sales. Both the sales price and operating costs are expected to increase by 2% per year due to inflation.

To place the new equipment into full operation, OCF will need to increase the amount of cocoa pods it processes. Cocoa pod is the raw material used for making cocoa powder. The cost of this initial increase in raw materials is expected to be $100,000. For each of the subsequent years, net working capital (NWC) is projected to be 25% of total sales expected in the following year. For example, NWC for Year 1 = 0.25(Year 2 sales), etc.Half of the initial investment in this project will be borrowed at an interest rate of 8.5%. A non-refundable insurance premium of $1,000 for this investment was pre-paid 2 years ago.

The firm's tax rate is 40% and the cost of capital is 12%

1.What is the final net cash flow - after adjustments - for Year 4?

A.$183,545

B. $414,400

C.$427,400

D. $885,660

E. $408,288

F. None of the above