The Bistro is planning to add a new line of noodles that will require the acquisition of new processing equipment. The equipment will cost $1,000,000, including installation and shipping. It will be depreciated straight-line to zero value over the 10-year econmic life of the project. Interest cost associated with financing the equipment purchases is estimated to be $30,000 annually. The espected salvage value of the machine at the end of 10 years is $200,000.

One year ago a marketing survey was performed to gauge the likely successf this new project. The survey cost $25,000, and was paid last year.

If this new equipment is acquired. It will also allow the replacement of old equipment used for other food lines. This oldequipment can be salvaged for $150,000 nd has a book value of $200,000. The remaining depreciation on the old equipment is $30,000 annually for five more years.

Additional net working capital of $85,000 will be needed immediately. When the project is terminated in 10 years, thereno longer will be a need for this incremental working capital.

The Bistro expects to sell $300,000 worth of this new pasta annually. The cost of producing and selling the pasta is estimated to be $50,000 annually (not including depreciation or interest expense). The marginal tax rate is 40%.

a. Compute the net investment

b. Compute the net cash flow for the first year

c. Compute the net cash flow for the final year (year 10), including all terminal cash flows.

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