Question
1)Afirm considers to buy a machine in 2020 . The cost of that machine is $ 5 000 000.The firm uses 5 year straight line
1)Afirm considers to buy a machine in 2020 . The cost of that machine is $ 5 000 000.The firm uses 5 year straight line depreciation which allows it to write off $ 1 000 000 depreciation expense each year. The firm is subject to 20% corporate tax rate.The firm's revenue in 2021 is expected to be $ 6 000 000if the investment is not done. The revenue will be $ 9 000 000 if the investment is done.The firm's total costs (including both COGS and General&Administrative Costs) will be $ 4 000 000 if the investment is not done.The total costs will be $ 5 500 000 if the investment is done. Also the following information is given for the year 2021
Without InvestmentWith Investment
Inventories$ 300 000$ 500 000
Acc. Receivables$ 200 000$ 300 000
Acc. Payables$ 100 000$ 150 000
Given the above information;calculate the free cash flow of that investment for the years 2020 and 2021.
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