Question
For the following project, compute the projects free cash flow (FCF) in each year. What is the net present value of the project? Do you
For the following project, compute the projects free cash flow (FCF) in each year. What is the net present value of the project? Do you take the project? Machine costs (Capex) $600 upfront and is depreciated using the straight line method over 10 years The machine will produce 100 gadgets at a cost of $1 each for 10 years Each gadget can be sold at $3 in every year The project requires no marketing costs in years 1 through 5, but as time goes on, it requires a marketing cost of $100 each year in years 6 through 10 to keep the sales of the gadgets going The tax rate is 40% There are no inventory requirements, but accounts receivable are 20% of sales each year from year 1 to 10, and accounts payable are 10% of marketing costs each year from year 6 to 10 (thus, the net working capital is 0 in year 0) The discount rate is 10%
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