Augusta Inc (AI)is considering developing a top-endstand-up paddle board. AI'ssales prognosis is

5,000 units per year for the next 5 years (afterwhich time this project is expected to shut down).The paddle boards would sell for $2,200 each with variable costs of $700 for each one produced, and annual fixed costs associated with production would be $1,400,000. In addition, there would be a $3,600,000 initial expenditure associated with the purchase of new production equipment. It is assumed that this initial expenditure will be depreciated using the straight-linemethod down to zero over 5 years. This project will also require a one-timeinitial investment of

$1,500,000 in net working capital associated with inventory, and it is assumed that this working capital investment will be fully recovered when the project is shut down. Finally,assume that the firm'stax rate is 35 percent.

a.What is the initial free cash flow for this project (at time 0)?

b.What are the annual free cash flows associated with this project for years 1 through 4?

c.What is the terminal free cash flow in year 5 (thatis, the free cash flow in year 5 plus any additional cash flows associated with termination of the project)?

d.What is the project'sNPV given a required rate of return of 13

percent?