Question
A local firm is considering a new 5-year project. In order to progress, the firm would have to invest $250,000 into a new equipment. The
A local firm is considering a new 5-year project. In order to progress, the firm would have to invest $250,000 into a new equipment. The equipment would be straight-line depreciated to a book value of zero over a 20 year life. Sales and production costs are expected to be $100,000 and $60,000 per year, respectively. Furthermore, new net working capital of $12,000 would be needed immediately. The firm expects to retrieve 60% of NWC investments at the end of the project. The market value of the equipment is expected to be $100,000 at the end of fifth year. The firm faces a tax rate of 21% and its required return on investments of this riskness is 14%.
(a) What is the FCF in year 0?
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