1. Orlando Business Tech. Inc. (OBTI) is considering expanding into a new market. The project is expected to last 5 years and then to be terminated as this a short term investment. Fixed costs per year including rental of the building, insurance, etc., will cost $31,000 per year. The equipment for the facility will cost $220,000 and shipping and installation costs for the equipment are $15,000. Depreciation is MACRS scale with the yearly values as follows: 20%, 32%, 19%, 12%, 11%, and 6% for years 1 to 6 respectively.

It is estimated the equipment will have a salvage value and can be sold for $30,600 at the end of the 5th year. In order to operate the facility the company will have to train employees at a cost of $17,000 and incur additional net operating working capital in the form of inventories, etc., of $14,000 which will be liquidated at the end of the project. The company's marginal tax rate is 39%, and they expect the following units sold, etc.:

Year units sold Revenue per unit Costs (expenses) per unit

1 1,200,000 7.28 7.19

2 1,350,000 7.30 7.20

3 1,350,000 7.35 7.28

4 900,000 7.40 7.30

5 500,000 7.40 7.30

A) What is the initial outlay for this project?

B) What is the terminal year cash flow?

C) Calculate the incremental operating cash flow for year 1 only.

(Don't forget expenses include variable and fixed costs).