Keene, Inc. is considering a new five-year expansion project that requires an initial fixed asset investment of
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 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 |
Fundamentals Of Corporate Finance
ISBN: 9781265553609
13th Edition
Authors: Stephen Ross, Randolph Westerfield, Bradford Jordan