Intro

Apple is planning to launch a new easy$-$to$-$use kitchen appliance with a

touchscreen interface, the iToaster. Apple expects to sell $1$ million and $2$ million

units in the first two years after launch, respectively, and then to discontinue this

product. Each unit will sell for $$200$ in the first year after launch, and $$150$ in the

second year. The costs of components and labor are $$70$ per unit, while salaries

and other expenses add up to $$10$ million in each year the product is sold.

The factory that manufactures the iToaster requires an investment of $$90$ million

right now and $$45$ million one year from now. It will take one year to complete, so

production will only start in the second year. The factory will be depreciated

linearly to zero over $5$ years after its completion.

To get production up and running, Apple has to buy components worth $$5$ million

immediately before the launch of the product, and add another $$2$ million worth

of components to its inventory exactly one year later.

The firm's marginal tax rate is $34\%.$

a$.)$ What is the net operating profit after taxes in year $2($in $ million$)?$

b$.)$ What is the net operating profit after taxes in year $3($in $ million$)?$

c$.)$ what is the incremental cash flow $($CF$)$ at the end of year $0($in $ million$)?$

d$.)$ What is the incremental cash flow $($CF$)$ at the end of year $1?($in $ million$)$

e$.)$ What is the incremental cash flow $($CF$)$ at the end of year $2?($in $ million$)$