Question: Shelton Pharmaceuticals Inc. is planning to develop and introduce a new drug for pain relief. Management expects to sell 3 million units in the first

Shelton Pharmaceuticals Inc. is planning to develop and introduce a new drug for pain relief. Management expects to sell 3 million units in the first year at $8.50 each and anticipates 10% growth in sales per year thereafter. Operating costs are estimated at 70% of revenues. Shelton will invest $20 million in depreciable equipment to develop and produce this product. The equipment will be depreciated straight line over 15 years to a salvage value of $2.0 million. Shelton’s marginal tax rate is 40%. Calculate the project’s operating cash flows in its third year.

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