Van der LInde Inc. is considering investing $1114 in new equipment that will fall into the 7-year MACRS class. The equipment would be installed in an empty building the firm purchased two years ago for $1000 that it was planning to sell for $1200. Assume that the vacant building has been depreciated on a straight-line basis over a 10-year horizon to a salvage value of $0 and that this years depreciation has already been recognized. If Van der LInde buys the equipment, it will no longer sell the building. The new equipment is expected to generate revenues of $5144 one year from today and revenues would grow at an annual rate of 8%. Variable costs would equal 75% of sales and fixed costs will equal $1071 per year beginning a year from today. If Van der LInde invests in the new equipment, the working capital associated with the new equipment will be as shown below.

If Van der LIndes corporate tax rate equals 21%, set up the equations and plug in the relevant numbers needed to calculate the firms unlevered net income and free cash flow today and three years from today if it invests in the new equipment. Note: Show formulas for each step.

0 4 Year Cash Acct. Rec. Inventory Acct. Pay 1 80 65 459 492 77 0 442 471 2 84 67 475 512 3 87 71 91 75 527 552 5 96 79 554 582 502 531