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QUESTION

(Calculating free cash flows) Presently, Solartech Skateboards is considering expanding its product line to include gas-powered skateboards; however,...

Using the expected free cash flows,  what is the project’s NPV given a 10 percent required rate of return? What  would the project’s NPV be if they sold 10,000 skateboards?

I know how to come up with the answers if there was a 100 percent chance to sell 10,000 skateboards for 10 years.

EBIT = units sold(sales-variable costs) – (fixed costs) - depreciation

EBIT = 10,000 (100-40) – 160,000 – 100,000 = 340,000

EBIT(1 - tax rate) = net income

340,000 (1 – 0.34) = 224,400

Annual Free Cash flows for year 1 to 9: 224, 400 + 100,000 = 324,400

324,400 + 50,000 = 374,400

Using excel, NPV given a 10 percent required rate of return = $962,574.73 .

Not sure how to to this when it is broken down to 60%-20%-20% chance. That is where I need help.

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