Sway's Back Store is considering a project which will require the purchase of $1.5 million in new equipment. The equipment will be depreciated straight-line to a book value of $0.5 million over the 5-year life of the project. Annual sales from this project are estimated at $950,000. The variable cost is 40% of the annual sales and there is an annual fixed cost of $100,000. Sway's Back Store will sell the equipment at the end of the project for a salvage value of $0.7 mil. Additional net working capital equal to $0.4 mil to support the project. All of the new net working capital will be recouped at the end of the project. The firm desires a minimal 10% rate of return on this project. The tax rate is 40%. You can use the following tables to construct the cash flows necessary for the NPV calculation.

PLEASE SHOW ALL WORK - NO USE OF EXCEL - USE FORMULAS

A) What is the annual depreciation? ***Straight-line depreciation expense = (Beginning Value Ending Value) / life expectancy

B) What is the TAX on salvage? ***Taxes on Salvage = Tax rate * Capital Gain

C) What is the operating cash flow? ***Operating Cash Flow = (Sales-Costs-Depreciation) Taxes + Depreciation

D) What is the projects NPV?

E) Fill in the table based on the information

	Year 0	Year 1	Year 2	Year 3	Year 4	Year 5
Capital Expenditure
in NWC
Oper CF
Salvage CF
Free Cfs