Question
XYZ is considering a project. It need to purchase a machine at $1,000,000 upfront. The tax office allows the machine to be depreciated on a
XYZ is considering a project. It need to purchase a machine at $1,000,000 upfront. The tax office allows the machine to be depreciated on a straight-line basis over five years, though the management plans to end the project in three years. The receivables related to the project are expected to be $164,084 per year. The sales are expected to be $580,572 per year, and the cost of goods sold is expected to be $239,636 per year. XYZ's marginal tax rate is 30% and its effective tax rate is 16%. The cost of capital is 11%.
What is the Free Cash Flow in year one?
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