a. Given the available information, what are the free cash flows in years 0 through 10 that should be used to evaluate the proposed project? Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9 Year 10 Year 0 -$25,000 -$10,000 Cost of Machine Change in Net Working Capital Sales Revenue Minus Cost of Goods Sold Equals Gross Profit Minus Selling, General, and Administrative Expenses $30,000 $18,000 $30,000 $18,000 $30,000 $18,000 $30,000 $18,000 $30,000 $18,000 $30,000 $18,000 $30,000 $18,000 $30,000 $18,000 $30,000 $18,000 $10,000 $30,000 $18,000 $2,000 $2,000 $2,000 $2,000 $2,000 $2,000 $2,000 $2,000 $2,000 $2,000 $1,000 $2.500 $1,000 $2,500 $1,000 $2,500 $1,000 $2,500 $1,000 $2,500 $1,000 $2,500 $1,000 $2,500 $1,000 $2,500 $1,000 $2,500 $1,000 $2,500 Plus Overhead that would have occurred anyway Minus Depreciation Equals Net Operating Income Minus Income Tax Equals Net Income Plus Depreciation Cost of Machine plus Change in Net Working Capital Equals Cash Flow $2,500 $2,500 $2,500 $2,500 $2,500 $2,500 $2,500 $2,500 $2,500 $2,500 $0 $0 $0 $0 $0 $0 $0 $0 $0 $10,000 b. If the cost of capital for this project is 14%, what is your estimate of the value of the new project? 14% Cost of Capital NPV a. Given the available information, what are the free cash flows in years 0 through 10 that should be used to evaluate the proposed project? Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9 Year 10 Year 0 -$25,000 -$10,000 Cost of Machine Change in Net Working Capital Sales Revenue Minus Cost of Goods Sold Equals Gross Profit Minus Selling, General, and Administrative Expenses $30,000 $18,000 $30,000 $18,000 $30,000 $18,000 $30,000 $18,000 $30,000 $18,000 $30,000 $18,000 $30,000 $18,000 $30,000 $18,000 $30,000 $18,000 $10,000 $30,000 $18,000 $2,000 $2,000 $2,000 $2,000 $2,000 $2,000 $2,000 $2,000 $2,000 $2,000 $1,000 $2.500 $1,000 $2,500 $1,000 $2,500 $1,000 $2,500 $1,000 $2,500 $1,000 $2,500 $1,000 $2,500 $1,000 $2,500 $1,000 $2,500 $1,000 $2,500 Plus Overhead that would have occurred anyway Minus Depreciation Equals Net Operating Income Minus Income Tax Equals Net Income Plus Depreciation Cost of Machine plus Change in Net Working Capital Equals Cash Flow $2,500 $2,500 $2,500 $2,500 $2,500 $2,500 $2,500 $2,500 $2,500 $2,500 $0 $0 $0 $0 $0 $0 $0 $0 $0 $10,000 b. If the cost of capital for this project is 14%, what is your estimate of the value of the new project? 14% Cost of Capital NPV