Cash Flow Analysis

Cash Flow Analysis. Biometric Devices, Inc., is analyzing the potential profitability of three potential new testing devices:
Assume that: (1) The company's marginal city-plus-state-plus-federal tax rate is 40%, (2) each product is expected to have a three-year life, (3) the firm uses straight-line depreciation, (4) the average cost of capital is 20%, (5) the products have the same risks as the firm's other business, and (6) the company has already spent $25,000 on research and development (R&D) for these products. This $250,000 has been capitalized and will be amortized over the life of the product chosen, if any.
A. What is the expected net cash flow each year? (Hint: Cash flow equals net profit after taxes plus depreciation and amortization charges.)
B. What is the net present value of each product? Which product, if any, should BDI introduce?

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