2-3 Calculating Project FCF In the spring of 2015, Jemison Electric was considering an investment in a new distribution center. Jemisons CFO anticipates additional earnings before interest and taxes (EBIT) of $100,000 for the first year of operation of the center, and, over the next five years, the firm estimates that this amount will grow at a rate of 5% per year. The distribution center will require an initial investment of $400,000 that will be depreciated over a five-year period toward a zero salvage value using straight-line depreciation of $80,000 per year. Jemisons CFO estimates that the distribution center will need operating net working capital equal to 20% of EBIT to support operation. Assuming the firm faces a 30% tax rate, calculate the projects annual project free cash flows (FCFs) for each of the next five years where the salvage value of operating networking capital and fixed assets is assumed to equal their book values, respectively.

Note 1: Time line: year 1 means the end of year 1. Year 0 is the beginning (same as beginning of year 1) Note 2: The Net working capital needs was calculated as " =(E15D15)$C$10" in cell D20. The formula is the same as "=(E15$C$10D15$C$10)". The first term E15*\$C \$10 means the NWC needed for year 2 , which has to be invested at the beginning of year 2 (the same as end of year 1). The second term D15*\$C\$10 is the recovered NWC from year 1 operation. Therefore the difference between these two means the addtional NWC (same as net working captial needs) is recorded at end of year 1. Negative sign means it is an expense. The same meaning goes to cells C20 to H20. Note 3. Year 0 (cell C20) has formula "=-(D15-C15)*\$C $10". It means to begin the project, the firm has to invest 20% of EBIT as NWC and it has to be made at the beginning of year 1 (i.e. year 0). Cell H2O should be postive number since at the end of year 5 the firm liquidates all of it's investment in net operating working capital