Bailey Sheppard Corp. ("BSC") manufactures musical equipment and is evaluating the economics of expanding its manufacturing facility to enable it to take on a new business customer contract for the next 4 years. Last year, the company paid Target Research LLC $35,000 to do marketing research study for its product lines. The current expansion scenario would have total construction costs of $1.3 million and it would take about 50 days to complete (i.e., essentially up-front). The Company would also put in $250 thousand of new machinery. Inventory (raw materials, work-in-process, finished goods) investment needed for the expansion would be $65 thousand. Annual depreciation associated with the expansion would be $150 thousand per year for the next four years, but the company has decided for income tax purposes to expense 100% of the cost of the long-term assets in Year O. The company expects to borrow 100% of the upfront costs and thereby incur $646 thousand in total interest expense over the life of the project. Incremental sales for this project are estimated to be $1.2 million for Year 1: $1.9 million for Year 2: $2.1 million for Year 3; and $1.2 million for Year 4. Cost of goods sold is estimated to be approximately 50% of total sales, and additional fixed costs are estimated to be $100 thousand per year. At the end of the project's estimated life in Year 4, the company estimates it will be able to sell excess capital assets for $125,000 and the expected book value for these items would be $0 (zero). Also at the end of the project, $40,000 of remaining inventory could be liquidated at cost. The weighted average cost of capital is 16%, its assumed marginal income tax rate is 25%, and its capital gains tax rate is 25%.

What is Terminal Year-specific Cash Flow (i.e, excluding the Annual Operating Cash Flow portion)? $ 153,750 $ 224.250 $ 450,000 $ 133,750

Is(Are) there any irrelevant cash flow(s) mentioned in this problem? If so, what is(are) it(they)?

Yes, the market research study

Yes, the interest expense and the market research study

Yes, the interest expense, the excess inventory sold in Year 4, and the market research study

Yes: the interest expense.

No. There are none.