You are the junior financial analyst for LBD. After many years of making only little black dresses, LBD is considering expanding into little black pants. If they decide to proceed, the new production line will cost $7,000,000 and will be depreciated straight line over its 7 year accounting life, but the project will last only 5 years. After five years, the production line can be scrapped for $75,000. Marketing believes that the project will generate $1,000,000 in sales in year one, $2,000,000 in year two, $2,500,000 in year three, $3,000,000 in year four, and $1,750,000 in year five. It will have annual fixed costs of $800,000. Tax=21% and the hurdle rate for any new LBD project is 18%. HINT: Notice the difference between the project's accounting life and its useful life. Therefore, there will be a book value.

1. What is the relevant operating cash flow for each year? Only OCF.

Year 1-

Year 2-

Year 3-

Year 4-

Year 5-

2. What is the after-tax salvage of the production line?

3. What is the all-inclusive cash flow for year 5?

4. NPV?

5. IRR?