Answered step by step
Verified Expert Solution
Question
1 Approved Answer
Premier Steel, Inc. is considering the purchase of a new machine for $110,000 that has a useful life of 3 years. The firms cost of
Premier Steel, Inc. is considering the purchase of a new machine for $110,000 that has a useful life of 3 years. The firms cost of capital is 11% and the tax rate is 40%. This machine will be sold for its salvage value of $20,000 at the end of 3-years. The machine will require an investment of $2,500 in spare parts inventory upon installation. The machine will cost $7,500 to ship and $4,500 to install and modify it. Sales are as follows: year 1 = $90,000; year 2 = $97,500; year 3 = $105,000. Operating expenses are year 1 = $25,000; year 2 = $27,000; year 3 = $29,000. The investment in working capital will be liquidated at termination of the project at the end of year 3. What is the free cash flow for year 3? | ||||
Year1 | Year2 | Year3 | Year4 | |
MACRS Rates | 33% | 45% | 15% | 7% |
A) | $54,820 |
B) | $52,320 |
C) | $49,820 |
D) | $55,420 |
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started