The business case team had compiled the following baseline information surrounding the Sneaker $2013$ project: $1.$ The life of the Sneaker $2013$ project was expected to be six years. Assume the analysis took place at the end of $2012.2.$ The suggested retail price of the shoe was $$190.$ Gross margins for high$-$end athletic footwear averaged about $40\%$ at the retail level, meaning each pair sold would net New Balance $$115.$ The global athletic footwear market in $2011$ totaled approximately $$74\mathrm{.}5$ billion and was expected to grow at a CAGR of $1\mathrm{.}8\%$ from $2011$ to $2018,$ reaching $$84\mathrm{.}4$ billion by $2018\mathrm{.}3$ Based on market research and analysis of other recent athlete endorsements, the New Balance marketing division estimated the following sales volumes for Sneaker $2013$: Year $201320142015201620172018$ Pairs sold $($millions$)1\mathrm{.}21\mathrm{.}61\mathrm{.}42\mathrm{.}41\mathrm{.}80\mathrm{.}9$ The $2016$ number assumed Kirani James participated in the $2016$ games in Rio de Janeiro, Brazil, and won at least one medal$\mathrm{.}44.$ For the first two years, the introduction of Sneaker $2013$ would reduce sales of existing New Balance shoes as follows: Lost sales: $2013$: $$35$ million $2014$: $$15$ million Assume the lost revenue had the same margins as Sneaker $2013.5.$ In order to produce the shoe, the firm needed to build a factory in Vietnam. This required an immediate outlay of $$150$ million, to be depreciated on a $39-$year MACRS$5$ basis. Depreciation percentages for the first six years respectively were: $2\mathrm{.}6\%,5\%,4\mathrm{.}7\%,4\mathrm{.}5\%,4\mathrm{.}3\%,$ and $4\mathrm{.}0\%.$ The firm$$s analysts estimated the building would be sold for $$102$ million at project termination. This $$salvage value$$ has not been taken into consideration when computing annual depreciation charges. $6.$ The company must immediately purchase equipment costing $$15$ million. Freight and installation of the equipment would cost $$5$ million. The cost of equipment and freight$/$installation was to be depreciated on a five$-$year MACRS basis. Depreciation percentages for the six years respectively were: $20\%,32\%,19\%,12\%,11\%,$ and $6\%.$ It was believed the equipment could be sold for $$3$ million upon project termination. $7.$ In order to manufacture Sneaker $2013,$ two of the firm$$s working capital accounts were expected to increase immediately. Approximately $$15$ million of inventory would be needed quickly to fill the supply chain, and accounts payable were expected to increase by $$5$ million. By the end of $2013,$ the accounts receivable balance would be $8\%$ of project revenue; the inventory balance would be $25\%$ of the project$$s variable costs; and accounts payable would be $20\%$ of the project$$s variable costs. All working capital would be recovered at the end of the project by the end of the sixth year. $8.$ Variable costs were expected to be $55\%$ of revenue. $9.$ Selling, general, and administrative expenses were expected to be $$7$ million per year. $10.$ Kirani James would be paid $$2$ million per year for his endorsement of Sneaker $2013,$ with an additional $$1$ million Olympic bonus in $2016.11.$ Other advertising and promotion costs were estimated as follows: Year $201320142015201620172018$ A&P Expense $($millions$)$ $$25$ $$15$ $$10$ $$30$ $$25$ $$1512.$ New Balance had already spent $$2$ million in research and development on Sneaker $2013.13.$ The Sneaker $2013$ project was to be financed using a combination of equity and debt. The interest costs on the debt were expected to be approximately $$1\mathrm{.}2$ million per year. The New Balance discount rate for new projects such as this was $11\%.14.$ New Balance$$s effective tax rate was $40\%.$ Rodriguez was worried about the marketing approach for Sneaker $2013$ targeting $12-$ to $18-$ year$-$old males. Recent market data showed the average age of athletic footwear purchasers to be just over $27$ years, up from $24$ three years earlier. This trend was expected to continue as the population aged. Success would depend on an effective marketing and advertising campaign which targeted not only the younger consumer, but which reached the ultimate purchaser who was more likely to be a parent. The order and questions are as follows:

Produce a complete capital budgeting cash flow statement for the Sneaker $2013$ project:

What to include: Factory Cost? Depreciation? R&D$?$ Impact on company? what other? What not to include and why?

Project initial outflow for year $0$

Net Operating Cash flow for operation years

Terminal values and treatment

NPV

IRR and Payback