Reference no: EM132061035

You are considering an investment in a new project that will manufacture high quality sofa/beds. Your estimates are that you can sell 5,000 of these a year for 5 years after which you believe the project should be shut down. The sale price is $1,200 per unit with variable costs of $500 per unit. Annual fixed costs will be $1 million with an initial investment of $5 million required for the project. Capital expenditure will be depreciated in a straight line over 5 years and there will be an extra $500.000 required as investment in net working capital due to inventory requirements. This will be recovered when the project concludes. Your tax rate is 28%. What is the initial outlay associated with the project? What are the annual free cash flows associated with the project in years 1 – 4? What is the final net free cash flow in year 5? What is the NPV Of the project given 9% require rate of return?