You are a financial analyst for Forte, Inc., a bus operator firm that is bidding on a public transport government contract in a city in South Asia. The project requires the company to purchase and operate buses on selected routes.

Data available for your analysis:

$$ Investment is in $50$ buses each costing $$50,000$ that will operate for $5$ years. Total investment outlay is expected to be $$3$M$.$

$$ The project has no salvage value.

$$ The city government has guaranteed to pay $$1\mathrm{.}75$ per kilometer for a guaranteed $50,000$ kilometers for each of the $50$ buses.

$$ VC is $$1$ per kilometer with fixed costs of $$250$K$/$year$.$

$$ Risk free rate is $5\%$ and the company's risk department has projected a beta of $1\mathrm{.}8.$ Return on the broad market is $10\%.$

$$ WACC of the company is $8\%.$

$$ The Asian country has offered full tax exemption.

Compute:

$1.$ Net after$-$tax cash flows for each of the $5$ years of the project $($remember that net annual cash flows $=$ annual cash inflows $-$ annual cash outflows$).$

$2.$ A net present value analysis $($you will need to calculate the rate to be used for discounting, and the rate must be based on the risk inherent in the project$).$ HINT: A risk$-$adjusted discount rate may be computed using the CAPM or SML approach that considers the data available.