Question
A firm considers to buy a machine in 2020. The cost of that machine is $ 5 000 000. The firm uses 5 year straight
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
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started