You work for LifeRhythm Devices, a company that makes wearable heart$-$monitoring devices.

You are now reviewing information about a new product. You think you should be able to sell

$200,000$ units of these devices per year for $3$ years. Your team has spent $$7\mathrm{.}5$ million designing

and testing the products in the past two years. You think you can charge $$200$ per unit and the

production of the devices will cost $$75$ per unit $($includes both materials and labor costs$).$ In

addition, this project will also incur a marketing cost of $$5$ million per year. If you were to

launch the production, you will have to buy new equipment worth $$60$ million. This equipment

will have a $3-$year life and will be depreciated straight line to a book residual value of $$12$ million

over that life. You expect you will be able to sell the equipment for $$25$ million when the project

ends in $3$ years. Your company already had an existing net working capital level at $$6$ million.

Production of the new product will require you to increase your working capital from $$6$ million

to $$10$ million immediately. Working capital will decrease back down to $$6$ million at the end of

the third year. The company currently leases a private jet for its CEO, which costs $$2\mathrm{.}5$ million

annual lease. Your tax rate is $21\%.$ What is the NPV of the project of the discount rate is $15\%?$

$($When answering this question, show detailed steps in the space given where you are instructed to

$$show your work here$.)$

a$)$ List Operating Cash Flows in the table below.

Year $0123$

OCF

Show your work here:

b$)$ List the change of Net Working Capital in the table below. $($List increase as $+,$ and

decrease as $-.)$

Year $0123$

Chg$.$ Of NWC

$($Showing your work for part b$)$ is optional$)$

c$)$ List the change of Capital Investment in the table below. $($List increase as $+,$ and

decrease as $-.)$

Year $0123$

Chg$.$ of Capital

Investment

Show your work here:

d$)$ List the incremental free cash flow in the table below based on your answer from part

a$)$ to c$)$

Year $0123$

Incremental FCF

$($Showing your work for part d$)$ is optional$)$

e$)$ If the appropriate discount rate for this project is $15\%,$ should LifeRhythm accept the

project? Explain