Question
14) ? 19) LEE Corporation intends to purchase equipment for $1,000,000. The equipment has a 5 year useful life and will be depreciated on a
14) ? 19) LEE Corporation intends to purchase 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. LEE?s marginal tax rate is 30%.
Use of 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 the new machine is equal to 10% of EBIT.
14) The free cash flow in year 1 is:
A) $395,000 B) $305,000 C) $330,000 D) $390,000
15) The free cash flow in year 2 is:
A) $395,000 B) $305,000 C) $330,000 D) $390,000
16) The free cash flow in year 3 is:
A) $395,000 B) $305,000 C) $330,000 D) $390,000
17) The free cash flow in year 4 is:
A) $395,000 B) $305,000 C) $330,000 D) $390,000
18) The terminal cash flow in year 5 is:
A) $255,000 B) $260,000 C) $510,000 D) $495,000
19). If the risk-adjusted discount rate for this project is 12%, calculate the project?s net present value.
A) $355,672 B) $369,922 C) $372,634 D) $381,782
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