You are in the FP&A department of a midsized electronics manufacturing company. One of the major revenue$-$producing products is a niche smartphone.

Due to rapid changes in technology, the company spent $$250,000$ on a marketing study to determine the feasibility of launching an upgraded smartphone.

Assume the required return is $12$ percent.

$1.$ Estimated sales for the next $5$ years are as follows:

Year $135,175,000$

Year $256,700,000$

Year $348,825,000$

Year $445,150,000$

Year $528,875,000$

$2.$ Variable costs for the next $5$ years are as follows:

Year $114,070,000$

Year $222,680,000$

Year $319,530,000$

Year $418,060,000$

Year $511,550,000$

$3.$ Fixed costs are estimated to be $$5,400,000$ each year for the next $5$ years.

$4.$ Depreciation is estimated for the next $5$ years as follows:

Year $15,930,350$

Year $210,163,350$

Year $37,258,350$

Year $45,183,350$

Year $53,705,950$

$5.$ The company's tax rate is $22$ percent.

$6.$ The change in NWC for the next $5$ years is as follows:

Year $1(7,035,000)$ Required investment in NWC $($Cash outflow$)$

Year $2(4,305,000)$ Required investment in NWC $($Cash outflow$)$

Year $31,575,000$ Recovery of investment in NWC $($Cash inflow$)$

Year $4735,000$ Recovery of investment in NWC $($Cash inflow$)$

Year $59,030,000$ Recovery of investment in NWC $($Cash inflow$)$

$7.$ The equipment to manufacture the smartphone will cost $$41,500,000.$

$8.$ The salvage value of the equipment at the end of the project will be $$6,638,903$

QUESTIONS

a$.$ Show the calculations of free cash flows for each year of the project life

b$.$ Calculate the payback period

c$.$ Calculate the profitability index

d$.$ Calculate the IRR

e$.$ Calculate the NPV

f$.$ Should the company pursue the project? Why or why not?