DeLuxe Furniture is thinking of buying a wood cutting machine for $140,000 that would save it $45,000 per year in production costs. The savings would be constant over the project's 3-year life. The machine is to be linearly depreciated to zero and will have no resale value after 3 years.

The machine would require an additional $6,000 in net operating working capital. The appropriate cost of capital for this project is 12% and the company's tax rate is 35%.

	Year 0	Year 1	Year 2	Year 3
Cost savings	0	45,000	45,000	45,000
Depreciation	0	46,667	46,667	46,667
EBIT	0	-1,666.67	-1,666.67	-1,666.67
Taxes (35%)
Net income
Depreciation
NOPAT + DEP
CAPEX
NOWC
FCF

1. What is the free cash flow in year 0? Choose the right sign.

2. What is the free cash flow in year 1?

3. What is the free cash flow in year 2?

4. What is the free cash flow in year 3? Hint: add the recovery of net operating working capital.

5. What is the NPV of this project?