Question Details

1. (Calculating project cash flows and NPN) you are considering expanding your product line that currently consists of skateboards to include gas powered skateboards. And you feel you can sell 8,000 of these per year for 10 years (after which this project is expected to shut down with solar-powered skateboard taking over). The gas skateboard would sell for $90 each purchase of new production equipment. It is assumed that this initial expenditure will be depreciated using the simplified straight-line method down to zero over 10 years. The project will also require a one - time initial investment of $70,000 in net working capital associated with inventory, and this working capital associated with inventory, and this working capital investment will be recovered when the project is shut down. Finally assume that the firm- one- time initial investment of $70,000 in net working capital associated with inventory, and this working capital investment will be recovered when the project is shut down. Finally, assume that the firm- marginal tax rate is 31 percent.
a. what is the initial cash outlay associated with this project.?
b. what are the annual net cash flows associated with this project for year 1 through 9?
c. what is the terminal cash flaws in year 10(that is ,the free cash flows in year 10 plus any additional cash flows associated with termination of the project)?
d. what is the project- NPV given a required rate of return of 8 percent.?
a. The initial cash outlay associated with this project is $1170000.
b. the annual net cash flows associated with this project for years 1 through  9 are $289400
c. the terminal cash flows in year 10
d. given required rate of return of 8% the project is NPV is $804321. 

2. (Calculating the expected NPV of a project) Management at the doctors Bone and joint Clinic is considering whether to purchase

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