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 $360,000 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 60% 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: The firm has a marginal tax rate (federal and state) of 34%. Year 1 2 3 4 Depreciation rate 33% 45% 15% 7% BAttempt 3/5 for 10 pts. Part 1 What is the initial (year-0) free cash flow from the project? Choose the right sign. p+ decimals Submit Part 2 What is the free cash flow in year 1? B Attempt 1/5 for 10 pts. Part 2 What is the free cash flow in year 1? 264396 Correct In year 1, capital expenditure and the change in net operating working capital are zero. Dep = 0.33 380,000 = 125,400 EBIT = Revenue - Costs - Depreciation = P Q-0.6 P Q - Depreciation = 6*140,000 - 0.6*6*140,000 - 125,400 = 210,600 FCF = NOPAT + DEP - CAPEX - ANOWC = EBIT (1-t) + Dep. - CAPEX - ANOWC = 210,600 (1-0.34) + 125,400-0-0 = 264,396 Part 3 What is the free cash flow in year 2? 0+ decimals Submit BAttempt 1/5 for 10 F BAttempt 3/5 for 10 pts. Part 3 What is the free cash flow in year 2? 0+ decimals Submit Part 4 What is the free cash flow in year 3? 0+ decimals Submit BAttempt 3/5 for 10 pts. B Attempt 2/5 for 10 pts