You are considering a proposal to manufacture cereal for a retailer chain. The project requires use of an existing building to install the machines, store the products inventory, and the raw material, which the firm acquired two years ago for $3 million and which you are currently renting out for $250,000 a year. Rental rates are expected to remain stable going forward. You also need to make an upfront investment into machines and other equipment of $2 million. This investment can be fully depreciated straight-line over the next 10 years. However, you expect to terminate the project at the end of five years and to sell the machines and equipment for $500,000. Finally, the project requires an initial investment into net working capital equal to 20% of predicted first-year sales. In Subsequent years, net working capital is 10% of the predicted sales over the following year. Sales of cereals are expected to be $5 million in the first year and to stay constant for five years. Total manufacturing costs and operating expenses (excluding depreciation) are 75% of sales, and profits are taxed at 35%.

What are the relevant free cash flows of the project?

If the cost of capital is 15%, what is the NPV of the project?