The C Corporation, a firm in the 30 percent marginal tax bracket with a required rate of return or discount rate of 11 percent, is considering a new project. This project involves the introduction of a new product. This project is expected to last 5 years and then, because this is somewhat of a fad product, it will be terminated. Given the following information,

determine the net cash flows associated with the project, the project's net present value, the profitability index, and the internal rate of return. Apply the appropriate decision criteria.

a. Determine the free cash flows associated with the project.

b. Determine the project's net value

c. Determine the profitability index

d. Determine the internal rate of return

x i Data Table Cost of new plant and equipment: Shipping and installation costs: Unit sales: $218,000,000 $1,700,000 Year 1 2 3 4 5 Units Sold 1,300,000 2,000,000 2,000,000 1,400,000 1,000,000 Sales price per unit: Variable cost per unit: Annual fixed costs: Working-capital requirements: $900/unit in years 1 through 4, $700/unit in year 5 $450/unit $12,000,000 There will be an initial working capital requirement of $1,700,000 to get production started. For each year, the total investment in net working capital will be equal to 14 percent of the dollar value of sales for that year. Thus, the investment in working capital will increase during years 1 through 3, then decrease in year 4. Finally, all working capital is liquidated at the termination of the project at the end of year 5. Use the simplified straight-line method over 5 years. It is assumed that the plant and equipment will have no salvage value after 5 years. The depreciation method: Print Done x i Data Table Cost of new plant and equipment: Shipping and installation costs: Unit sales: $218,000,000 $1,700,000 Year 1 2 3 4 5 Units Sold 1,300,000 2,000,000 2,000,000 1,400,000 1,000,000 Sales price per unit: Variable cost per unit: Annual fixed costs: Working-capital requirements: $900/unit in years 1 through 4, $700/unit in year 5 $450/unit $12,000,000 There will be an initial working capital requirement of $1,700,000 to get production started. For each year, the total investment in net working capital will be equal to 14 percent of the dollar value of sales for that year. Thus, the investment in working capital will increase during years 1 through 3, then decrease in year 4. Finally, all working capital is liquidated at the termination of the project at the end of year 5. Use the simplified straight-line method over 5 years. It is assumed that the plant and equipment will have no salvage value after 5 years. The depreciation method: Print Done