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Kadlec Veterinary Services is considering opening a new office. Kadlec forecasts revenue of $2.5 million in year 1, $3 million in year 2, $3.75 million
Kadlec Veterinary Services is considering opening a new office. Kadlec forecasts revenue of $2.5 million in year 1, $3 million in year 2, $3.75 million in year 3 and $4.5 million in year 4. Assume the project will end in year 4. Kadlec predicts that he will face variable costs that are 35% of revenue in each year. Kadlec also predicts that he will face fixed costs the first year of $500,000 and that those costs will grow at 1% each year due to inflation. He will need to invest in $2.8 million of veterinary equipment today and will depreciate it on a straight-line basis over the life of the project. Kadlec spent $100.000 a year ago to study the feasibility of opening the new office. Kadlec's office manager wants to allocate $200,000 each year to the proposed new site to cover the overall firm's overhead. Note that these expenses will be incurred regardless of whether the new office is opened. Assume federal and state taxes will be 30% of his taxable income in each year. Ignore working capital and deferred taxes in this problem. Construct a table and calculate the relevant free cash flows associated with this project for the appropriate time
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