Part 4) What is the free cash flow in year 3?

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 $330,000 to purchase and $20,000 for shipping and installation. Last year, the firm cleared an unused area in its timber mil 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 $2 per piece Variable costs, including timber electricity and labor, are expected to add up to 70% 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% The firm has a marginal tax rate (federal and state) of 34%. Part 1 - Attempt 35 for 10 pts What is the initial (year-o) free cash flow from the project? Choose the right sign. 383000 At the beginning of the project, EBIT and depreciation are both zero. Initial net capital spending is the cost of purchase and Installation: NCSO - 330,000 - 20,000 - 350,000 This is the amount that can be depreciated over time. The cost of clearing the space for the machine is a sunk cost and should not be considered anymore. The required inventory of wood creates a positive change in net working capital, while the increase in accounts payable decreases net working capital: ANWC = inventory - Accounts payable - 25,000 - 12.000 = 13,000 FCFO - OCF - NCS. ANWC - EBIT (1-0) Dep. - NCS - ANWC +0+0 - 350,000 - 13.000 =-363,000 Part 2 38 - Attempt 35 for 10 pts What is the free cash flow in year 1? Ordecima Submit Part 3 Attempt 1/5 for 10 pts. What is the free cash flow in year 27