We are given that x=y=5, so x+2=7, y+1=6,8+y=13, 5+y=10 and so on, only need to solve question 

Transcribed Image Text:

There is an investment project that requires an upfront capital investment of x + 2, which is depreciated in a straight-line over 5 years. Furthermore, in year 1 net working capital increases by y + 1 and in year 6 this extra net working capital is returned. The project generates the following EBIT: Time 1 2 3 4 5 6 EBIT 8 4 6 5 8+ y 4 The 3 of the (unlevered) project is 1.3, the risk-free interest rate is 4%, and the market risk premium is 4%. The corporate tax rate is 25%. a. What is the free cash flow that the company generates in each year? The firm keeps a constant debt-to-equity ratio of 0.5 and given this debt-to-equity ratio debt is risk-free. There is an investment project that requires an upfront capital investment of x + 2, which is depreciated in a straight-line over 5 years. Furthermore, in year 1 net working capital increases by y + 1 and in year 6 this extra net working capital is returned. The project generates the following EBIT: Time 1 2 3 4 5 6 EBIT 8 4 6 5 8+ y 4 The 3 of the (unlevered) project is 1.3, the risk-free interest rate is 4%, and the market risk premium is 4%. The corporate tax rate is 25%. a. What is the free cash flow that the company generates in each year? The firm keeps a constant debt-to-equity ratio of 0.5 and given this debt-to-equity ratio debt is risk-free.

Answer rating: 100% (QA)

Based on the given information x y 5 a Free cash flows Year 1 E... View the full answer