In the spring of 2015, Jemison Electric was considering an investment in a new distribution center. Jemison’s CFO anticipates additional earnings before interest and taxes (EBIT) of $ 100,000 for the first year of operation of the center, and, over the next five years, the firm estimates that this amount will grow at a rate of 5% per year. The distribution center will require an initial investment of $ 400,000 that will be depreciated over a five-year period toward a zero salvage value using straight-line depreciation of $ 80,000 per year. Jemison’s CFO estimates that the distribution center will need operating net working capital equal to 20% of EBIT to support operation.
Assuming the firm faces a 30% tax rate, calculate the project’s annual project free cash flows ( FCFs) for each of the next five years where the salvage value of operating networking capital and fixed assets is assumed to equal their book values, respectively.