Answer the next three questions based on the following information:

Kinston Industries is considering investing in a machine that will cost $125,000 and will last for three years. The machine will generate revenues of $120,000 each year and the cost of goods sold will be 50% of sales. At the end of year three the machine will be sold for $15,000. The appropriate cost of capital is 10% and Kinston is in the 35% tax bracket. Assume that Kinston's new machine will be depreciated straight line to a book value of $5,000 at the end of year three.

What is the free cash flow to the machine in year 1 if working capital rises from $0 to 25% of sales that year?

$23,000.00

$13,000.00

$83,000.00

-$17,000.00