1. The Smith & Warner Company is considering an expansion of its production facilities which will permit the firm to build and sell a new line of cell phones. The project requires a $10,000,000 capital investment and is expected to have a three-year economic life. Other relevant information is :

• At the end of the project, the equipment can be sold for $300,000.
• The firms WACC is estimated at 8%.
• Incremental sales are projected to be $12,000,000 per year.
• Annual costs(excluding depreciation) are estimated to be $3,000,000
• The project requires a $2,000,000 initial investment in net operating working capital.
• The expected tax rate is 33%.

The MACRS depreciation schedule in the list below will be used:

• Year 1 = 0.4445
• Year 2 = 0.3333
• Year 3 = 0.1481
• Year 4 = 0.0741

Calculate and show the project cash flows for years 0 through 3.