Calculate project annual project free cash flow


In the spring of 2010, Jemison Electric was considering an investment in a new distribution center. Jemison's CFO anticipates additional EBIT of $100,000 for the 1st year of operation of the center in 2011, and, over the next 5 years, the firm estimates that this amount will grow at a rate of 5% per year. The distribution center will require an initial investment of $400,000 that will be depreciated over a 5 year period toward a zero salvage value using straight line depreciation of $80,000 per year. Furthermore, Jemison expects to invest an amount equal to the firms annual depreciation expense to maintain the physical plant. These additional capital expenditures will also be depreciated over a period of 5 years toward a zero salvage value. Jemison's CFO estimates that the distribution center will need additional net working capital equal to 20% of new EBIT. Assuming the firm faces a 30% tax rate, calculate the project's annual project free cash flow for each of the next 5 years,

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Finance Basics: Calculate project annual project free cash flow
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