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The Clayton Manufacturing Company is considering an investment in a new automated inventory system for its warehouse that will provide cash savings to the firm

The Clayton Manufacturing Company is considering an investment in a new automated inventory system for its warehouse that will provide cash savings to the firm over the next eight years. The firms CFO anticipates additional earnings before interest, taxes, depreciation, and amortization (EBITDA) from cost savings equal to $220,000 for the first year of operation of the centre; over the next seven years, the firm estimates that this amount will grow at a rate of 6% per year. The system will require an initial investment of $600,000 that will be depreciated over an eight-year period using straight-line depreciation of $75,000 per year and a zero estimated salvage value. The firms tax rate is 35% and the cost of capital for the project is 12%. What is the projects annual free cash flow (FCF) in year 2? A. $169,250 B. $206,784 C. $186,925 D. $177,830

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