Assignment:
Purchasing equipment for $1,000,000. The equipment has a 5 year useful life and will be depreciated on a straight-line basis to a salvage value of $250,000. The marginal tax rate is 30 %. The equipment is expected to change the company's reported EBIT by $300,000 in year one, $350,000 in year two, $350,000 in year three, $200,000 in year four, and $150,000 in year five. Net working capital associated with new machine is equal to 10% of EBIT. Please Show work!
1.) The free Cash flow in year 1 is:
2.) The free cash flow in year 2 is:
3.) The free cash flow in year 3 is:
4.) The free cash flow in year 4 is:
5.) The terminal cash flow in year 5 is:
6.) If the risk-adjusted discount rate for this project is 12%, calculate the project's net present value.