Problem Set #1 Use the following information to answer the next eight questions: A bicycle manufacturer currently produces 300,000 units a year and expects output levels to remain steady in the future. It buys chains from an outside supplier at a price of $4.50 a chain. The plant manager believes that it would be cheaper to make these chains rather than buy them. Direct in-house production costs are estimated to be only $3.00 per chain. The necessary machinery would cost $325,000 and would be obsolete after 10 years. This investment could be depreciated to zero for tax purposes using a 10-year straight-line depreciation schedule. The plant manager estimates that the operation would require additional working capital of $65,000 but argues that this sum can be ignored since it is recoverable at the end of the 10 years. Expected proceeds from scrapping the machinery after 10 years are $30,000. The company pays tax at a rate of 25% and the opportunity cost of capital is 12%. Question #1: If the firm buys the chains from the outside supplier, the FCF (free cash flow) in year one would be closest to? -1,012,500 ()-1,350,000 -759,375 -877.500 )-1,350,000