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QUESTION

Please help me with: b. (17000 (1yr) and 17000 (2-9yrs) c. What is the terminal cash flow in year 10​ (that is, what is the free cash flow in year 10 plus any additional cash flows associated with the

Please help me with:

b. (17000 (1yr) and 17000 (2-9yrs)

c. What is the terminal cash flow in year 10​ (that is, what is the free cash flow in year 10 plus any additional cash flows associated with the termination of the​ project)?

d. Using the expected free cash​ flows, what is the​ project's NPV given a required rate of return of 8 ​percent? What would the​ project's NPV be if 12,000 skateboards were​ sold?

This way I understand where I messed up to I can move on to the next chapter please.

​(Calculating free cash flows​) 

At​ present, Solartech Skateboards is considering expanding its product line to include​ gas-powered skateboards;​ however, it is questionable how well they will be received by skateboarders. Although you feel there is a 50 percent chance you will sell 12,000 of these per year for 10 years​ (after which time this project is expected to shut down because​ solar-powered skateboards will become more​ popular), you also recognize that there is a 25 percent chance that you will only sell 4,000 and also a 25 percent chance you will sell 17,000. The gas skateboards would sell for $120 each and have a variable cost of ​$35 each. Regardless of how many you​ sell, the annual fixed costs associated with production would be ​$110,000. In​ addition, there would be an initial expenditure of ​$900,000 associated with the purchase of new production equipment which will be depreciated using the bonus depreciation method in year 1. Because of the number of stores that will need​ inventory, the working capital requirements are the same regardless of the level of sales. This project will require a​ one-time initial investment of $70,000 in net working​ capital, and​ working-capital investment will be recovered when the project is shut down.​ Finally, assume that the​ firm's marginal tax rate is 24 percent.

a. What is the initial outlay associated with the​ project? Got this right

$970,000

b. What are the annual free cash flows associated with the project for years​ 1, and 2 through 9 under each sales​ forecast? What are the expected annual free cash flows for year​ 1, and years 2 through​ 9?

For 12,000 (1yr)=907,600; (2-9yrs)= 691,600

For 4,000 (1yr)=390,800 ; (2-9yrs)= 174,800

For 17,000 (1yr) = Got Wrong ; (2-9yrs)=Got Wrong

c. What is the terminal cash flow in year 10​ (that is, what is the free cash flow in year 10 plus any additional cash flows associated with the termination of the​ project)?

Got Wrong

d. Using the expected free cash​ flows, what is the​ project's NPV given a required rate of return of 8 ​percent? What would the​ project's NPV be if 12,000 skateboards were​ sold?

Got Wrong

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