Question
You must evaluate a proposal to buy a new milling machine. The base price is $130,000, and shipping and installation costs would add another $15,500.
You must evaluate a proposal to buy a new milling machine. The base price is $130,000, and shipping and installation costs would add another $15,500. The machine will be straight line depreciated and it would be sold after 4 years for $55,000. The machine would require a $3,500 increase in net operating working capital in year one (all working capital is recovered in the final year). Revenues from the new machine will be $60,000, the marginal tax rate is 25%, cost of goods sold is 50% of revenues, and the WACC is 11%. Compute the FCF for years 0-4.
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