Q25 A bicycle manufacturer currently produces 323,000 units a year and expects output levels to remain steady in the future. It buys chains from an outside supplier at a price of $2.20 a chain. The plant managerbelieves that it would be cheaper to make these chains rather than buy them. Direct in-house production costs are estimated to be only $1.60 per chain. The necessary machinery would cost $254,000 andwould be obsolete after 10 years. This investment could be depreciated to zero for tax purposes using a 10-year straight-line depreciation schedule. The plant manager estimates that the operation wouldrequire $26,000 of inventory and other working capital upfront (year 0), but argues that this sum can be ignored since it is recoverable at the end of the 10 years. Expected proceeds from scrapping themachinery after 10 years are $19,050. If the company pays tax at a rate of 25% and the opportunity cost of capital is 15%, what is the net present value of the decision to produce the chains in-house instead ofpurchasing them from the supplier?The annual free cash flows for years 1 to 10 of buying the chains is $Compute the NPV of buying the chains from the FCF.The NPV of buying the chains from the FCF is $Compute the initial FCF of producing the chains.The initial FCF of producing the chains is $. (Round to the nearest dollar. Enter a free cash outflow as a negative number.)Compute the FCF in years 1 through 9 of producing the chains.The FCF in years 1 through 9 of producing the chains is $. (Round to the nearest dollar. Enter a free cash outflow as a negative number.)Compute the FCF in year 10 of producing the chains.The FCF in year 10 of producing the chains is $Compute the NPV of producing the chains from the FCF.The NPV of producing the chains from the FCF is $. (Round to the nearest dollar. Enter a negative NPV as a negative number.)Compute the difference between the net present values found above.The net present value of producing the chains in-house instead of purchasing them from the supplier is $(Round to the nearest dollar. Enter a free cash outflow as a negative number.)(Round to the nearest dollar. Enter a negative NPV as a negative number.)(Round to the nearest dollar. Enter a free cash outflow as a negative number.)(Round to the nearest dollar.)

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The annual free cash flows for years 1 to 10 of buying the chains is $. (Round to the nearest dollar. Enter a free cash outflow as a negative number.) Compute the NPV of buying the chains from the FCF. The NPV of buying the chains from the FCF is S. (Round to the nearest dollar. Enter a negative NPV as a negative number.) Compute the initial FCF of producing the chains. The initial FCF of producing the chains is $. (Round to the nearest dollar. Enter a free cash outflow as a negative number.)