Yarra Ltd is a performing arts centre.The centre is evaluating a project to increase the number of seats by adding 5000 new seats for the general public.Each new seat for the

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general public will generate 3200 dollars in incremental annual revenue starting fromyear 1.

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The incremental operating expenses associated with the new seating will amount to 60% of

1.0.0

the incremental revenue.These expenses includehiring additional personnel to handle

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merchandising,ushering and security. The new construction will cost 1000000 dollars and will befully depreciated to a value of zero on a straight-line basis over the10-yearlife of the project, after which the seats will have to be removed.The performing arts centrewil have to invest 500000 dollars in additional working capital immediately, this working capital investment will be recovered inthe last year of the project. The project willnot require any other working capitalinvestments during its life.To fund the new construction, the performing arts centre will have to borrow300000 dollars at 6%annual interest rate from the bank and will pay additional annualinterest payment of180000 dollrs startingfrom year1.Yarra Ltd's taxrate is30%.Themanagers of the performing arts centre estimate that the cost of capital is 12% per annum.

Answer the following questions 1(a)to 1(e).Note:Forall the calculation questions,youare onlyalwed to write thenumerical answeryou calculated for the question,please DO NOT addS,%,dollars,million,thousand,percent, space,etc.in your answers.

1(a):Calculate the projectsincrementalfree cash flows inyear 0.(f itisnegative,please remember to add a negative sign)

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Yarra Ltd is a performing arts centre. The centre is evaluating a project to increase the number of seats by adding 5000 new seats for the general public. Each new seat for the general public will generate 3200 dollars in incremental annual revenue starting from year 1. The incremental operating expenses associated with the new seating will amount to 60% of the incremental revenue. These expenses include hiring additional personnel to handle merchandising, ushering and security. The new construction will cost 10000000 dollars and will be fully depreciated to a value of zero on a straight-line basis over the 10-year life of the project, after which the seats will have to be removed. The performing arts centre will have to invest 500000 dollars in additional working capital immediately, this working capital investment will be recovered in the last year of the project. The project will not require any other working capital investments during its life. To fund the new construction, the performing arts centre will have to borrow 3000000 dollars at 6% annual interest rate from the bank and will pay additional annual interest payment of 180000 dollars starting from year 1. Yarra Ltd's tax rate is 30%. The managers of the performing arts centre estimate that the cost of capital is 12% per annum. Answer the following questions 1(a) to 1(e). Note: For all the calculation questions, you are only allowed to write the numerical answer you calculated for the question, please DO NOT add $, %, dollars, million, thousand, percent, space, etc. in your answers. 1(a): Calculate the project's incremental free cash flows in year 0. (If it is negative, please remember to add a negative sign) Answer: Yarra Ltd is a performing arts centre. The centre is evaluating a project to increase the number of seats by adding 5000 new seats for the general public. Each new seat for the general public will generate 3200 dollars in incremental annual revenue starting from year 1. The incremental operating expenses associated with the new seating will amount to 60% of the incremental revenue. These expenses include hiring additional personnel to handle merchandising, ushering and security. The new construction will cost 10000000 dollars and will be fully depreciated to a value of zero on a straight-line basis over the 10-year life of the project, after which the seats will have to be removed. The performing arts centre will have to invest 500000 dollars in additional working capital immediately, this working capital investment will be recovered in the last year of the project. The project will not require any other working capital investments during its life. To fund the new construction, the performing arts centre will have to borrow 3000000 dollars at 6% annual interest rate from the bank and will pay additional annual interest payment of 180000 dollars starting from year 1. Yarra Ltd's tax rate is 30%. The managers of the performing arts centre estimate that the cost of capital is 12% per annum. Answer the following questions 1(a) to 1(e). Note: For all the calculation questions, you are only allowed to write the numerical answer you calculated for the question, please DO NOT add $, %, dollars, million, thousand, percent, space, etc. in your answers. 1(a): Calculate the project's incremental free cash flows in year 0. (If it is negative, please remember to add a negative sign)