Find the cash flow from assets (CFFA) of the following project.
|Project life||2 years|
|Initial investment in equipment||$8m|
|Depreciation of equipment per year for tax purposes||$3m|
|Unit sales per year||10m|
|Sale price per unit||$9|
|Variable cost per unit||$4|
|Fixed costs per year, paid at the end of each year||$2m|
Note 1: Due to the project, the firm will have to purchase $40m of inventory initially (at t=0). Half of this inventory will be sold at t=1 and the other half at t=2.
Note 2: The equipment will have a book value of $2m at the end of the project for tax purposes. However, the equipment is expected to fetch $1m when it is sold. Assume that the full capital loss is tax-deductible and taxed at the full corporate tax rate.
Note 3: The project will be fully funded by equity which investors will expect to pay dividends totaling $10m at the end of each year.
Find the project's CFFA at time zero, one and two. Answers are given in millions of dollars ($m).