Question
In: Finance
DeLuxe Furniture is thinking of buying a wood cutting machine for $150,000 that would save it...
DeLuxe Furniture is thinking of buying a wood cutting machine for $150,000 that would save it $40,000 per year in production costs. The savings would be constant over the project's 3-year life. The machine is to be linearly depreciated to zero and will have no resale value after 3 years.
The machine would require an additional $9,000 in net operating working capital. The appropriate cost of capital for this project is 14% and the company's tax rate is 35%.
| Year 0 | Year 1 | Year 2 | Year 3 | |
| Cost savings | 0 | 40,000 | 40,000 | 40,000 |
| Depreciation | 0 | 50,000 | 50,000 | 50,000 |
| EBIT | 0 | -10,000 | -10,000 | -10,000 |
| Taxes (35%) | ||||
| Net income | ||||
| Depreciation | ||||
| NOPAT + DEP | ||||
| CAPEX | ||||
| ΔNOWC | ||||
| FCF |
Attempt 1/5 for 8 pts.
Part 1
What is the free cash flow in year 0? Choose the right sign.
Try againSee solution (-2 pts.)Move on
Attempt 1/5 for 8 pts.
Part 2
What is the free cash flow in year 1?
Try againSee solution (-2 pts.)Move on
Attempt 1/5 for 8 pts.
Part 3
What is the free cash flow in year 2?
Try againSee solution (-2 pts.)Move on
Attempt 1/5 for 8 pts.
Part 4
What is the free cash flow in year 3?
Hint: add the recovery of net operating working capital.
Try againSee solution (-2 pts.)Move on
Attempt 1/5 for 8 pts.
Part 5
What is the NPV of this project?
Solutions
jeff jeffy answered 1 year agoRelated Solutions
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