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Blue Mountain Lumber Ltd is considering purchasing a new wood saw that costs $50,000. The saw will generate revenues of $100,000 per year for five years. The cost of materials and labour needed to generate these revenues will total $60,000 per year, and other cash expenses will be $10,000 per year. The machine is expected to sell for $1,000 at the end of its five-year life and will be depreciated on a straight-line basis over five years to zero. Blue Mountain's tax rate is 30 percent, and its opportunity cost of capital is 10 percent. Should the company purchase the saw? Explain why or why not. You can use two methods to calculate the incremental FCF's. Method 1: Years Year 0 1 to 4 Year 5 Revenue - Op Ex EBITDA - D&A EBIT x (1-tal NOPAT + D&A | CF Opns - Cap Exp - Add WC FCF COMMONWEALTH OF AUSTRALIA Copyright Regulations 1969 Method 2: FCF = [(Revenue - Op Exp) x (1 t)] + D&A *t 11.20 You are the CFO of SlimBody Ltd a retailer of the exercise machine Bodyslim and related accessories. Your company is considering opening up a new store in Perth. The store will have a life of 20 years. It will generate annual sales of 5,000 exercise machines, and the price of each machine is $2,500. The annual sales of accessories will be $600,000, and the operating expenses of running the store, including labour and rent, will amount to 50 percent of the revenues from the exercise machines. The initial investment in the store will equal $30 million and will be fully depreciated on a straight-line basis over the 20-year life of the store. Your company will need to invest $2 million in additional working capital immediately, and recover it at the end of the investment. Your company's tax rate is 30 percent. The opportunity cost of opening up the store is 10 percent. What are the incremental cash flows from this project at the beginning of the project as well as in years 1-19 and 20? Should you approve it