Question: Keene, Inc. is considering a new five-year expansion project that requires an initial fixed asset investment of $3.0 million. The fixed asset will be depreciated

Keene, Inc. is considering a new five-year expansion project that requires an initial fixed asset investment of $3.0 million. The fixed asset will be depreciated using on a straight-line basis to zero over its five-year life. The fixed asset will have a market value of $350,000 at the end of the project. The project requires an initial investment in net working capital of $325,000. The working capital will be recovered at the end of the project’s life. The project is estimated to generate $2,250,000 in annual sales, with costs of $750,000. The tax rate is 35 percent.

What is the free cash flow in year 1 (FCF₁) on this project?

	a.	$1,575,000
	b.	$975,000
	c.	$900,000
	d.	$1,500,000
	e.	$1,185,000

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