Lululemon is considering a new project that improves inventory management for the next 5 years. The project has similar risks as the overall firm. The new technology will require an investment in computer and robotic equipment of $5 million (t=0). The machines will be depreciated on a straight-line basis to 0 over 5 years. At the end of the project, the company expects that they will be able to sell the used machines for $0.8 million. To operate the machines, each year there will be a fixed cost of $100,000. The benefit of these machines is that they will reduce the inventory (ie Net Working Capital) of the company by $8 million dollars during the time that the machines are in use (starting at year 1). There is no gain in operating revenues from these new machines. The tax rate for the company is 20%. Based on historical company information, you estimate that the cost of equity for Lululemon is 14% and the cost of debt is 6%. The company has maintained a debt-to-equity ratio of 1:2. 

What are the FCFs for the project for years 0 through 5?  

Answer rating: 100% (QA)

To calculate the Free Cash Flows FCFs for the project for years 0 through 5 well break down the cash ... View the full answer