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1. The Smith Company is evaluating an expansion project that will provide additional operating profit to the firm over the next five years. Additional EBITDA

1. The Smith Company is evaluating an expansion project that will provide additional operating profit to the firm over the next five years. Additional EBITDA of $300,000 is expected at the end of year one. This amount is expected to grow by 4% per year for the four years after that. The project will require an initial investment of $1.2 million. This initial investment will be depreciated over the five years of the project using straight line depreciation of $240,000 per year and a zero estimated salvage value. Smiths corporate tax rate is 30%.

a. Calculate the project's annual free cash flow for each of the next five years.

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