After spending $$9,500$ on

$$client development, you have just been offered a big production contract by a new client. The contract will add $

$203,000$ to your revenues for each of the next five years and it will cost you $

$98,000$ per year to make the additional product. You will have to use some existing equipment and buy new equipment as well. The existing equipment is fully $$depreciated$,$ but could be sold for $$46,000$now$.$ If you use it in the $$project$,$ it will be worthless at the end of the project. You will buy new equipment valued at $$33,000$and use the $5$ year MACRS schedule to depreciate it$.$It will be worthless at the end of the project. Your current production manager earns $

$76,000$per year. Since she is busy with ongoing $$projects$,$ you are planning to hire an assistant at $$42,000$per year to help with the expansion. You will have to immediately increase your inventory from $$20,000$ to $$30,00.$It will return to $$20,000$at the end of the project. Your $$company$\text{'}$s tax rate is $21\%$

$$and your discount rate is $15\mathrm{.}3\%.$

$$What is the NPV of the $$contract$?$

$($Note: Assume that the equipment is put into use in year $1.)$ Calculate the free cash flows below for years $0-6$

Sales

$-$ Cost of Goods Sold

Gross Profit

$-$ Annual Cost

$-$ Depreciation

EBIT

$-$ Tax

Incremental Earnings

$+$ Depreciation

$-$ Incremental Working Capital

$-$ Opportunity Cost

$-$ Capital Investment

Incremental Free Cash Flow