Raco Company invests in a 8-year project. If the shareholders have an indifferent investment rate of return at 5% in the financial market. Assume the Free Cash Flow (FCF) of the project maintains a constant growth rate at 4% since Year 4 and the salvage value at the end of the project is $2 million.

1) Please calculate FCF for each year

 2) What is the NPV of the project

 

Unit: $million Items Initial investments Revenue Costs of goods sold Other costs Depreciation EBIT Tax rate Capital expenditure Changes in Net Working Capital Free Cash Flow Present Year 1 Year 2 Year 3 Year 4 2100 1900 700 200 1000 0 20% 6 (120) 2300 1000 260 500 540 20% 30 100 2500 3500 1100 1321 310 529 350 150 740 500 20% 20% 90 110 150 (50)