Compute project-s annual project free cash flow


In spring of 2010, Jemison Electric was considering the investment in new distribution center. Jemisons CFO anticipates extar earnings before interest and taxes (EBIT) of $ 100,000 for first year of operation of center in 2011, and, over next five years, firm evaluates that this amount will grow at rate of 5% per year. Distribution center will need initial investment of $ 400,000 which will be depreciated over five- year period toward zero salvage value using straight-line depreciation of $ 80,000 per year. Further, Jemison expects to invest amount equal to firms annual depreciation expense to sustain physical plant. These added capital expenditures will also be depreciated over period of five years toward zero salvage value. Jemisons CFO evaluates that distribution center will require additional net working capital equal to 20% of new EBIT (i. e., change in EBIT from year to year). Suppose firm faces 30% tax rate, compute project's annual project free cash flow (FCF) for each of next five years.

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Project Management: Compute project-s annual project free cash flow
Reference No:- TGS031965

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