Revenue and cost Estimates for the next five years

Sales = 50,000 units/year (for five years)

Per Unit Price = $2600

Cost Estimates for production

Up-Front R&D = $25,000,000

Up-Front New Equipment = $20,000,000

Expected life of the new equipment is 6 years

Annual Overhead = $3,000,000 (for five years)

Per Unit Cost = $1200

Tax rate: marginal tax rate of 40%

Let’s assume that only 70% of customers pay with cash and that Cisco only pays 70% of invoices with cash.

Use the above information to create an income statement that shows net income for the next six years (years 0-6). Calculate your free cash flow for years 0-6. Calculate the NPV of this potential investment if the appropriate cost of capital is 10%.