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 is10%.