Questions 23 - 25 are based on the following problem: SSC is considering the design and manufacture of a new line of products that will include a whirlpool tub. A market survey of current clients shows significant demand for such a product. SSC spent $250,000 doing this market survey, which the company believes has contributed significantly to their understanding of the demand for this new product, and the price that can be charged. The new product will require several sets of aluminum molds that will cost a total of $500,000. These molds will be depreciated on a straight-line basis to a $100,000 salvage value over 5 years. The new product will also require $1,000,000 for additional plant and machinery. Plant and machinery will be depreciated on a straight-line basis to a $200,000 salvage value over 5 years. The molds and all plant and equipment will be sold at the end of year 5 at a market price that equals to the salvage value. Manufacture of the new products will require a $150,000 increase in net working capital, which will be recovered at the end of the life of the project. All money for this project will be borrowed from a bank and the annual interest cost on the loans is expected to be $120,000 per year for each of the next 5 years. SSC estimates that they will sell 3,000 whirlpool spa showers in each of the next 5 years. Each unit is projected to sell for $1,000. Variable costs, excluding management salaries, are $500 per unit and incremental fixed costs for the manufacture these new units will be $450,000 per year for each of the next 5 years. The new whirlpool spa showers are not expected to have any effect on the demand or cost of existing units. The new plant and product will require the firm to hire 2 new managers at a total annual cost of $125,000 each. A third manager, also with a total annual cost of $125,000, will be moved from the existing product line to the new product line. The accounting department will allocate her cost to this new project. SSCs tax rate is 40 percent. 23. Compute the initial net cash flow for this project. ____________ 24. Compute the Year 2 annual operating net cash flow for this project._____________ 4

25. Compute the final year non-operating net cash flow for this project. ____________