FCF $2-$ Free Cash Flow Practice Problems

Your company is considering an expansion into a new product area. The company has collected

the following information about the proposed product. $($Note: You may or may not need to use

all of this information, use only the information that is relevant.$)$

The project has an anticipated economic life of $5$ years. PLEASE DO

The company will have to purchase a new machine to produce the product. The machine has

an up$-$front cost $(T=0)$ of $$750,000.$ The machine will be fully depreciated using straight$-$line

depreciation over $5$ years to $$0.$ After five years, it's before$-$tax salvage value will equal

$$100,000.$

If the company goes ahead with the project it will have an effect on the company's net

working capital. At the outset, $T=0,$ inventory will increase by $$50,000$ and accounts

payable will increase by $$30,000.$ At $T=5,$ the net working capital will be recovered after the

praject is campleted.

The praject is expected to produce EBIT of $$300,000$ the firat year $($T $=1),$ $$300,000$ the

second and third years $(T=2$ and $3$FCF $2-$ Free Cash Flow Practice Problems

Your company is considering an expansion into a new product area. The company has collected

the following information about the proposed product. $($Note: You may or may not need to use

all of this information, use only the information that is relevant.$)$

The project has an anticipated economic life of $5$ years.

The company will have to purchase a new machine to produce the product. The machine has

an up$-$front cost $(T=0)$ of $$750,000.$ The machine will be fully depreciated using straight$-$line

depreciation over $5$ years to $$0.$ After five years, it's before$-$tax salvage value will equal

$$100,000.$

If the company goes ahead with the project it will have an effect on the company's net

working capital. At the outset, $T=0,$ inventory will increase by $$50,000$ and accounts

payable will increase by $$30,000.$ At $T=5,$ the net working capital will be recovered after the

praject is campleted.

The praject is expected to produce EBIT of $$300,000$ the firat year $($T $=1),$ $$300,000$ the

second and third years $(T=2$ and $3$ PLEASE DO IT IN EXCEL IF POSSIBLE