XYZ Inc is considering investing in a new hydraulic press. The press will cost $130000, has a

useful life of 7 years, $30000 salvage value and will be depreciated using the straight-line

method. This project has a life of 3 years. At the end of the 3rd year, the press will be sold at

an estimated value of $60000. XYZs WACC is equal to 10% and tax rate is equal to 35%. Net

working capital requirements for this project are $15000, represent a necessary increase in

spare parts inventory and will be constant throughout projects life. This inventory of spare

parts will be depleted by the end of year 3. If purchased, the hydraulic press will help

increase cash revenue by $20000 annually while increasing operating expenses by $2000 at

the same time.

Required:

1) Compute operating cash flow for years 1, 2 and 3. Show your work!

2) Compute cash flow due to change in fixed assets for years 0 and 3. Show your work!

3) Compute cash flow due to change in NWC in years 0 and 3. Show your work!

4) Compute free cash flow for years 0, 1, 2, and 3. Show your work!