Lattice Semiconductor is thinking of buying a new machine for $150,000 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 falls into the 3-year MACRS class (see table for depreciation amounts) and can be sold for $80,000 after three years. The machine would require an additional $6,000 in net working capital. The company uses a weighted average cost of capital of 11% and has a tax rate of 35%.

Year 1	Year 2	Year 3
Cost savings	45,000	45,000	45,000
Depreciation	49,500	67,500	22,500
EBIT	-4,500	-22,500	22,500
Taxes (35%)
Net income
Depreciation
EBIT (1-t) + Dep.
CapEx
NWC
Free Cash Flow (FCF)

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

What is the free cash flow in year 1?

What is the free cash flow in year 2?

What is the machine's after-tax salvage value at the end of year 3?

What is the free cash flow in year 3?

Hint: add the after-tax salvage value and the recovery of net working capital.

What is the NPV of this project?

Year 1 Year 2 Year 3 Cost savings 45,000 45,000 45,000 49,500 67,500 22,500 Depreciation EBIT -4,500 -22,500 22,500 Taxes (35%) Net income Depreciation EBIT 1-t) Dep. CapEx ANWC Free Cash Flow (FCF)