Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

3) A firm considers to buy a machine in 2020. The cost of that machine is $ 5 000 000. The firm uses 5 year

image text in transcribed
3) A firm 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 $ 6 000 000 if 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 Investment With 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

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Bankers Handbook On Credit Management

Authors: Indian Institute Of Banking & Finance

1st Edition

9387957853, 978-9387957855

More Books

Students also viewed these Finance questions

Question

16. Verify Equation 9.4.3.

Answered: 1 week ago

Question

Distinguish between filtering and interpreting. (Objective 2)

Answered: 1 week ago