Epiphany Industries is considering a new capital budgeting project that will last for three years. Epiphany plans on using a cost of capital of 12% to evaluate this project. Based on extensive research, it has prepared the following incremental cash flow projects: Year 0 1 2 3 Sales (Revenues) 100,000 100,000 100,000 −Cost of Goods Sold (50% of Sales) 50,000 50,000 50,000 −Capital Cost Allowance 13,500 22,950 16,065 =EBIT 36,500 27,050 33,935 −Taxes (35%) 12,775 9,468 11,877 =Unlevered net income 23,725 17,582 22,058 +Capital Cost Allowance 13,500 22,950 16,065 +Changes to working capital −5,000 −5,000 −10,000 −Capital Expenditures −90,000 The free cash flow for the first year of Epiphany's project is closest to: A. $35,532 B. $45,000 C. $32,225 D. $25,000 E. $43,000
Epiphany Industries is considering a new capital budgeting project that will last for three years. Epiphany plans on using a cost of capital of 12% to evaluate this project. Based on extensive research, it has prepared the following incremental
Year 0 1 2 3
Sales (Revenues) 100,000 100,000 100,000
−Cost of Goods Sold (50% of Sales) 50,000 50,000 50,000
−Capital Cost Allowance 13,500 22,950 16,065
=EBIT 36,500 27,050 33,935
−Taxes (35%) 12,775 9,468 11,877
=Unlevered net income 23,725 17,582 22,058
+Capital Cost Allowance 13,500 22,950 16,065
+Changes to
−Capital Expenditures −90,000
The
A.
$35,532
B.
$45,000
C.
$32,225
D.
$25,000
E.
$43,000
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