Assume you are evaluating a project for your company. Your company is considering purchasing a new...

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Assume you are evaluating a project for your company. Your company is considering purchasing a new piece of equipment. The new equipment will cost $1,200,000 to purchase, $200,000 for freight to your company, and an additional $20,000 for installation. It will be depreciated using the MACRS method of depreciation and falls under the 20-year MACRS category. At the end of its life, you estimate that your company can sell the equipment for $200,000. Assume Section 179 does not apply to this purchase. The MACRS depreciation table is listed below. You estimate that the new machine will allow you to produce and sell 800 more units each year. Each unit sells for $12,000. Variable costs are approximately 65% of total sales. You also estimate that you will need to increase inventory by $12,000, which you will do using credit. Thus, accounts payable increases by $6,000. Your company has a marginal tax rate of 21%. a. What is the free cash flow in year O? b. What is the free cash flow in year 1? c. What is the free cash flow in year 2? d. What is the free cash flow in year 3? e. What is the free cash flow in year 4? Assume you are evaluating a project for your company. Your company is considering purchasing a new piece of equipment. The new equipment will cost $1,200,000 to purchase, $200,000 for freight to your company, and an additional $20,000 for installation. It will be depreciated using the MACRS method of depreciation and falls under the 20-year MACRS category. At the end of its life, you estimate that your company can sell the equipment for $200,000. Assume Section 179 does not apply to this purchase. The MACRS depreciation table is listed below. You estimate that the new machine will allow you to produce and sell 800 more units each year. Each unit sells for $12,000. Variable costs are approximately 65% of total sales. You also estimate that you will need to increase inventory by $12,000, which you will do using credit. Thus, accounts payable increases by $6,000. Your company has a marginal tax rate of 21%. a. What is the free cash flow in year O? b. What is the free cash flow in year 1? c. What is the free cash flow in year 2? d. What is the free cash flow in year 3? e. What is the free cash flow in year 4?

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