Arnold Inc. is considering a proposal to manufacture​ high-endprotein bars used as food supplements by body builders. The projectrequires use of an existing​ warehouse, which the firm acquiredthree years ago for $ 3million and which it currently rents out for$108,000. Rental rates are not expected to change going forward. Inaddition to using the​ warehouse, the project requires an upfrontinvestment into machines and other equipment of $1.4million. Thisinvestment can be fully depreciated​ straight-line over the next 10years for tax purposes. ​ However, Arnold Inc. expects to terminatethe project at the end of eight years and to sell the machines andequipment for $472,000. ​ Finally, the project requires an initialinvestment into net working capital equal to 10 percent ofpredicted​ first-year sales. ​ Subsequently, net working capital is10 percent of the predicted sales over the following year. Sales ofprotein bars are expected to be $ 4.9million in the first year andto stay constant for eight years. Total manufacturing costs andoperating expenses​ (excluding depreciation) are 80 percentof​sales, and profits are taxed at 30 percent.
a. What are the free cash flows of the​ project?
b. If the cost of capital is 15 % what is the NPV of the​project?
a. What are the free cash flows of the​ project?
The FCF for year 0 is ​$ ____million. ​ (Round to three decimal​places.)
The FCF for years​ 1-7 is ​$____million. ​ (Round to three decimal​places.)
The FCF for year 8 is ​$_____ million. ​ (Round to three decimal​places.)
b. If the cost of capital is 15 % what is the NPV of the​project?
The NPV of the project is ​$_____million. ​ (Round to threedecimal​ places.)