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  3. 11 8 at present solartech skateboards is consideri

11 8 At present Solartech Skateboards is considering expanding its product line to include gas...

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11 8 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 You expect to be able to sell 10 000 of these products per year for 4 years The gas skateboards would sell for 100 each and have a variable cost of 40 each Regardless of how many you sell the annual fixed costs associated with production would be 160 000 In addition there would be a 1 million initial investment associated with the purchase of new production equipment which will be depreciated evenly over 4 years i e every year 25 or 250 000 is depreciated This project will require a one time initial investment of 50 000 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 21 percent and the investors require 10 return Questions a Construct Operating Cash Flows b Construct Investment Cash Flows c Calculate the Free Cash Flows d Evaluate the project using NPV and IRR methods

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