TexBike currently manufactures only one model which is extremely popular due to its attractive under- $1,000 price point. The bike has a range of 15 to 25 miles depending on driving conditions and can be charged within 4 to 6 hours with the help of an AC adapter, included in the price. Given the fact that there is looming competition in this market, especially from Chinese firms who want to sell their e-Bikes through Amazon and other online platforms, TexBike knows that it needs to ramp-up quickly and make sales rapidly. TexBike sells its e-Bikes on its own web site as well as through Amazon marketplace. TexBike incurs different shipping costs in the two channels. For bikes sold directly, it incurs a flat shipping fee of $175 per bike, which will increase at 5% annually beginning in year 2, whereas, for bikes shipped through Amazon it incurs a shipping cost of $75 per bike, which will increase at 3% annually also beginning in year 2. While the selling price is the same across both channels, TexBike has to part with 15% commission to Amazon for using its sales platform. The company currently sells 75% of its bikes through Amazon and the rest through its own web site. This mix is not expected to change in the near future. TexBike has developed a new model e-Bike that has greater travel distance per charge and comes with improved stability, higher speed, and additional features, such as Bluetooth and light signals. The company has spent $1.5 million on research and development expenses, and $350,000 on a market study to estimate demand. It expects the new model to be in production for six years after which it will be replaced by another model. TexBike projects future unit sales as follows - Year 1: 5,000, Year 2: 15,000; Year 3: 20,000; Year 4: 25,000; Year 5: 15,000; and Year 6: 4,000. TexBike will invest $2.5 million immediately in new equipment and tooling costs. The equipment will be depreciated using MACRS 7-year life. Working capital will be built up at the beginning of each year. Accounts receivable will represent 45 days of sales, accounts payable will be 30 days of COGS, and inventory will be 20 days of sales, recognized at COGS. Assume 365 days in a year. The new bike will retail at $1,295 per unit in the first year, growing at 5% per year. COGS will represent forty percent of the selling price. Manufacturing fixed costs will be $1.25 million in the first year, growing at 8% a year. The company will also incur annual marketing costs of $2.25 million growing at 10% a year in the second through fourth years, and then declining by 40% a year for the remaining two years. Due to the new bike introduction, the existing models sales will be reduced by about 10% of the new units sold each year. The current bike retails for $995 per unit with a 35% contribution margin. There will be no other effects on the existing business. The new equipment will be sold at 15% of its initial purchase price after six years and net working capital will be recovered at the end of six years at 70% of its value at the beginning of the sixth year due to write- off of receivables and obsolete inventory. The company is in the 23% tax bracket and requires a rate of return of 14% on new projects. Using Excel, answer the following questions:

1. Calculate the initial outlay for the project. 2. Estimate all project operating cash flows for all years. 3. Estimate the terminal value of the project, only based on the salvage values of the equipment and net working capital after six years. 4. What is the payback period for the new project? 5. What is the IRR of the new project? 6. Should the project be accepted based on IRR?