You must analyze a potential new product-a caulking compound that Cory Materials' R&D people developed for use in the residential construction industry. Cory's marketing manager thinks they can sell 115,000 tubes per year at a price of $3.25 each for 3 years, after which the product will be obsolete. The required equipment would cost $150,000, plus another $25,000 for shipping and installation. Current assets (receivables and inventories) would increase by $35,000, while current liabilities (accounts payable and accruals) would rise by $15,000. Variable cost per unit is $1.95, fixed costs be $70,000 per year, and fixed assets would be depreciated under MACRS with a 3-year life. [33%, 45%, 15%, 7%), when production ceases after 3 years, the equipment should have a maket value of $15,000. Cory's tax rate is 40%, and it uses a 10% WACC for average-risk projects. Part 4. Project Cash Flows (Time Line of Annual Cash Flows) 0 Investment Outlays at Time 0: Equipment Increase in NOWC Operating Cash Flows over the Project's Life Units sold Sales price Sales revenue Variable costs Fixed operating costs EBIT Taxes (40%) EBIT(1- T) Add back depreciation EBIT (1-T)DEP Terminal Cash Flows at Time 3 Salvage value Tax on salvage value After-tax salvage value Recovery of NOWC Project FCF: EBIT( 1-T) + DEP-CAPEX-NOWC