you were considering new elliptical trainers and you feel you can sell 4000 of these per year for 5 years (after which time this project is expected to shut down when it is learned that being fit is unhealthy). The elliptical trainers will sell for $1800 each and have a variable cost of $900 each. The annual fixed costs associated with production would be $1,200,000. In addition, there would be a $4,000,000 initial expenditure associated with the purchase of new products and equipment. It is assumed that this initial expenditure will be depreciated using the bonus depreciation method in year 1. This project will also require a one time initial investment of $1,300,000 in net working capital associated with inventory, and working capital investment will be recovered when the product is shut down. Finally, assume the firms marginal tax rate is 24%.

a. what is the initial outlay associated with this project?

b. what are the annual free cash flows associated with this project for years 1, and 2 through 4?

c. what is the terminal cash flow in your five (that is, what is the free cash flow in year 5 plus any additional cash flows associated with the termination of the project)?

d. What is the projects NPV given a required rate of return of 9 percent?