DO NOT USE EXCEL, SHOW YOUR WORK

You are the CEO of a toy company debating whether to start manufacturing hoverboards. A factory can be purchased for $10 million in year 0 and sold for $10 million in year 11. You plan to depreciate the building to a book value of $0 using straight-line depreciation in years 1-10. Revenue will be $3 million per year in years 1-2 and $5 million per year in years 3-10. Costs will be $2 million per year in years 1-2 and $4 million per year in years 3-10. In order to hold large inventories, 50% of the booked costs in year t will be incurred in year t -1, and the remainder will be incurred in year t. The corporate tax rate is 40%. The annual discount rate is 10%.

What are the cash flows associated with selling the factory in year 11? What are the annual cash flows from operations in years 1-2 and 3-10?