Traid Winds Corporation, a firm in the 24 percent marginal tax bracket with a required rate of return or cost of capital of 14 percent, is considering a new project. This project involves the introduction of a new product. The project is expected to last 5 years and then, because this is somewhat of a fad product, be terminated. Given the information in the popup window, determine the free 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.

Cost of new plant and equipment 15,000,000

Shipping and installation costs 500,000

Year units sold

1 75,000

2 130,000

3 130,000

4 85,000

5 75,000

Sales price per unit in yeras 1 through 4 320

Sales price per unit in year 5 270

Variable cost per unit 160

Annual fixed costs 900,000

a.What is the initial outlay associated with this project?

b. What is the annual free cash flow associated with this project in year 1?

What is the annual free cash flow associated with this project in year 2?

What is the annual free cash flow associated with this project in year 3?

What is the annual free cash flow associated with this project in year 4?

c. What is the terminal cash flow in year 5 (that is, what is the free cash flow in year 5 plus any additional cash flows associated with the termination of the project)?

d. What is the project's NPV given a required rate of return of 14 percent?

Based on the NPV criterion, should the project be accepted?

A.Yes. The project should be accepted because its NPV is positive.

B.No. The project should be rejected because its NPV is negative.

e. What is the project's PI given a required rate of return of 14 percent?

Based on the PI criterion, should the project be accepted?

A.Yes. The project should be accepted because its PI is greater than 1.

B.No. The project should be rejected because its PI is less than 1.

f. What is the project's IRR?

Based on the IRR criterion, should the project be accepted?

A.Yes. The project should be accepted because its IRR is greater than the required rate of return, 14%.

B.No. The project should be rejected because its IRR is less than the required rate of return, 14%.