Assume the following investment opportunity. The company has constant leverage (debt to assets) of 50%, the cost of equity is 20%, and the cost of debt is 7.5%. The corporate tax rate is 25%. Investment takes place today, that is at year 0, and equals 30. The firm has hired a group of consultants which prepared the projections in the table below. The costs of their services are 2 and will be paid next year. Assume there are no changes in working capital.

Year 1 2 3 4 5

EBIT 12 14 16 18 20

Interests 0.5 0.5 1 1 1.5

Depreciation 1.5 1.5 1.5 1.5 1.5

What are the free cash flows for year 1?

a.

8.50

b.

6.50

c.

7.50

d.

10.50