Due to high demand for wood, San Lorenzo Lumber is considering buying a new timber cutting machine to add to its existing stock.

• The machine will cost $320,000 to purchase and $20,000 for shipping and installation. Last year, the firm cleared an unused area in its timber mill to make space for the machine, at a cost of $8,000.
• The new cutting machine will allow the company to sell an additional 140,000 pieces of wood per year, at a price of $6 per piece. Variable costs, including timber, electricity and labor, are expected to add up to 80% of sales.
• To make best use of the new machine, the company will need to increase its inventory of timber logs by $25,000. Since the firm uses trade credit when purchasing raw timber, accounts payable will increase by $12,000.
• The cutting machine is expected to last 4 years and will then be sold for $35,000. It falls into the 3-year MACRS class, with depreciation rates as follows:

  Year	1	2	3	4
  Depreciation rate	33%	45%	15%	7%

• Part 1

  What is the initial (year-0) free cash flow from the project? Choose the right sign.

• Part 2

  What is the free cash flow in year 1?

• Part 3

  What is the free cash flow in year 2?

• Part 4

  What is the free cash flow in year 3?

The firm has a marginal tax rate (federal and state) of 34%.