1. A project has a 4-year lifespan. The project requires a capital expenditure of $100 at the end of year 1. The expenditure has an accounting life of 2 years and will be depreciated on a straight- line basis during years 1 and 2. The project will be partially financed with a $90 interest-only bond floated at the beginning of year 1 such that the first interest payment will occur at the end of year 1. The bond has a 10% interest rate. The project will generate revenues of $100/year with cost of goods sold of $10 and SG&A expenses of $10. The tax rate is 35%. Note- if using formula 3 for operating cash flow, the interest expense should also be added back.
   1. What is the projects net income in each year? (record your answers in the table below)
   2. What are the project cash flows after-tax? (record your answers in the table below)
   3. What are the levered equity cash flows? (record your answers in the table below). Hint- think of levered equity cash flows as the total cash in (if positive) or cash out (if negative) if one individual owned the company outright.
   4. What is the project NPV at a discount rate of 12%?

Explain the year-to-year variation in project cash flow. In other words, if the project has constant EBITDA, explain why total cash flow is also not constant.

Year 1	Year 2	Year 3	Year 4
Revenue
COGS
SG&A
EBITDA
Depreciation
EBIT
Interest expense
EBT
Taxes
Net Income

Year 1	Year 2	Year 3	Year 4
Net income
Project after-tax cash flow
Levered equity cash flow