You work for Apple. After toiling away on $9.9 million worth of prototypes, you have finally produced your answer to Google Glasses: iGlasses (the name alone is genius). Glasses will instantly transport the wearer into the world as Apple wants him to experience it: iTunes with the wink of an eye and apps that can be activated just by looking at them. You think that these will sell for five years until the next big thing comes along (or until users are unable to interact with actual human beings). Revenues are projected to be $448.4 million per year along with expenses of $349.4 million. You will need to spend $59.6 million immediately on additional equipment that will be depreciated using the 5-year MACRS schedule. Additionally, you will use some fully depreciated existing equipment that has a market value of $10.7 million. As the Glasses are an outcome of the R&D center, Apple plans to charge $4.8 million of the annual costs of the center to the Glasses product for four years. Finally, Apple's working capital levels will increase from their current level of $118.1 million to $135.1 million immediately. They will remain at the elevated level until year 4, when they will return to $118.1 million. Apple's discount rate for this project is 14.4% and its tax rate is 21%. Calculate the free cash flows and determine the NPV of this project. (Note: Assume that the opportunity cost must be after-tax and the equipment is put into use in year 1.) .. ($ million) Year 0 Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Sales $ 0.00 $ 448.4 $ 448.4 $ 448.4 $ 448.4 $ 448.4 $ 448.4 - Cost of Goods Sold 0.00 349.4 349.4 349.4 349.4 349.4 349.4 Gross Profit S 0.00 $ 2 99 $ 99 $ 99 s 99 $ 99 $ 99 0.00 0.00 0.00 0.00 0.00 0.00 0.00 - Annual Charge - Depreciation 0 EBIT S 0 $ $ $ $ $ $ - Tax 0 $ 0 $ 6 $ $ $ $ $ Incremental Earnings + Depreciation - Incremental Working Capital 0.00 0.00 0.00 0.00 - Capital Investment 0.00 0.00 0.00 0.00 0.00 0.00 - Opportunity Cost 8.45 0.00 0.00 0.00 0.00 0.00 0.00 Incremental Free Cash Flow S S $ $ $ 5 $ You work for Apple. After toiling away on $9.9 million worth of prototypes, you have finally produced your answer to Google Glasses: iGlasses (the name alone is genius). Glasses will instantly transport the wearer into the world as Apple wants him to experience it: iTunes with the wink of an eye and apps that can be activated just by looking at them. You think that these will sell for five years until the next big thing comes along (or until users are unable to interact with actual human beings). Revenues are projected to be $448.4 million per year along with expenses of $349.4 million. You will need to spend $59.6 million immediately on additional equipment that will be depreciated using the 5-year MACRS schedule. Additionally, you will use some fully depreciated existing equipment that has a market value of $10.7 million. As the Glasses are an outcome of the R&D center, Apple plans to charge $4.8 million of the annual costs of the center to the Glasses product for four years. Finally, Apple's working capital levels will increase from their current level of $118.1 million to $135.1 million immediately. They will remain at the elevated level until year 4, when they will return to $118.1 million. Apple's discount rate for this project is 14.4% and its tax rate is 21%. Calculate the free cash flows and determine the NPV of this project. (Note: Assume that the opportunity cost must be after-tax and the equipment is put into use in year 1.) .. ($ million) Year 0 Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Sales $ 0.00 $ 448.4 $ 448.4 $ 448.4 $ 448.4 $ 448.4 $ 448.4 - Cost of Goods Sold 0.00 349.4 349.4 349.4 349.4 349.4 349.4 Gross Profit S 0.00 $ 2 99 $ 99 $ 99 s 99 $ 99 $ 99 0.00 0.00 0.00 0.00 0.00 0.00 0.00 - Annual Charge - Depreciation 0 EBIT S 0 $ $ $ $ $ $ - Tax 0 $ 0 $ 6 $ $ $ $ $ Incremental Earnings + Depreciation - Incremental Working Capital 0.00 0.00 0.00 0.00 - Capital Investment 0.00 0.00 0.00 0.00 0.00 0.00 - Opportunity Cost 8.45 0.00 0.00 0.00 0.00 0.00 0.00 Incremental Free Cash Flow S S $ $ $ 5 $