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please quickly i have just 12 min You are the owner of a building materials outlet, and you are considering adding a garden supplies section

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please quickly i have just 12 min

You are the owner of a building materials outlet, and you are considering adding a garden supplies section to your store. The cost of the expansion will be $1.6 million, to be depreciated over its 4-year life, using straight line depreciation to an expected salvage value of $500,000 at the end of the 4th year. To finance this investment, you will borrow $700,000 using a four-year balloon-payment bank loan (only interest paid for 4 years, the principal due at the end of the 4th year) with an interest rate of 10%. The garden supplies are expected to generate revenues of $600,000 in the 1st year, $ 650,000 in the 2nd year, $700,000 in the 3rd and 4th years. The expenses of operating the garden supplies section are expected to be 40% of revenues each year and the tax rate is 35%. Working capital requirements are expected to be 10% of revenues (made at the beginning of each period, but not debt financed beyond the initial $700,000 loan). Your cost of equity is 14%, and your cost of capital (WACC) is 12%. b) Estimate the operating free cash flows to the firm (FCFF) on the project for the next 4 years. (8 marks)

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