Simmonds Products has spent $258,000 (sunk cost) on research to develop low fat imitation wine. The firm is planning to spend $300,000 on a machine, shipping cost of $60,000 and installation costs of $40,000 for the machine. CAPEX will be capitalized and depreciated via straight-line over 5-years. The machine will not require a change in inventory levels, however account receivables will increase by $20,000, while account payables will increase by $15,000. The required rate of return is 14 percent, the tax rate is 25 percent and ROE is 18 percent. Earnings Before Interest, Taxes, Depreciation and Amortization, EBITDA, is expected to be $270,000 per year for years 1 through 7.

Find the initial investment, CF0, for the imitation low fat wine project.

Find annual depreciation.

Find free cash flow (FCF) for year 3.

Please show calculations, not using excel