Answered step by step
Verified Expert Solution
Question
1 Approved Answer
You are considering investing in a machine that will cost 60,000 euro in year 0 and will last for three years (years 1 to 3).
You are considering investing in a machine that will cost 60,000 euro in year 0 and will last for three years (years 1 to 3). Assume that your company uses straight-line depreciation in years 1 to 3. The machine will generate additional revenues of 50,000 euro each year and the cost of goods sold will be 40% of sales. Your company has a marginal tax rate of 20%. Assume that receivables are expected to account for 15% of annual revenues, and payables are expected to be 15% of the annual cost of goods sold. The cost of capital is 5% for this company. a) What is the EBIT in years 1, 2 and 3? b) What is the unlevered net income in years 1, 2 and 3? c) Calculate the free cash flow in years 0, 1, 2 and 3? c) Calculate the net present value of the investment
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started