The Clayton Manufacturing Company is considering an investment in a new automated inventory system for its warehouse that will provide cash savings to the firm over the next eight years. The firms CFO anticipates additional earnings before interest, taxes, depreciation, and amortization (EBITDA) from cost savings equal to $220,000 for the first year of operation of the centre; over the next seven years, the firm estimates that this amount will grow at a rate of 6% per year. The system will require an initial investment of $600,000 that will be depreciated over an eight-year period using straight-line depreciation of $75,000 per year and a zero estimated salvage value. The firms tax rate is 35% and the cost of capital for the project is 12%. What is the projects annual free cash flow (FCF) in year 2? A. $169,250 B. $206,784 C. S 186,925 D. $177,830
The Clayton Manufacturing Company is considering an investment in a new automated inventory system for its warehouse that will provide cash savings to the firm over the next eight years. The firms CFO anticipates additional earnings before interest, taxes, depreciation, and amortization (EBITDA) from cost savings equal to $220,000 for the first year of operation of the centre; over the next seven years, the firm estimates that this amount will grow at a rate of 6% per year. The system will require an initial investment of $600,000 that will be depreciated over an eight-year period using straight-line depreciation of $75,000 per year and a zero estimated salvage value. The firms tax rate is 35% and the cost of capital for the project is 12%. What is the projects annual free cash flow (FCF) in year 2? A. $169,250 B. $206,784 C. S 186,925 D. $177,830
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
Related questions
Question
The Clayton Manufacturing Company is considering an investment in a new automated inventory system for its warehouse that will provide cash savings to the firm over the next eight years. The firms CFO anticipates additional earnings before interest, taxes, depreciation, and amortization (EBITDA) from cost savings equal to $220,000 for the first year of operation of the centre; over the next seven years, the firm estimates that this amount will grow at a rate of 6% per year. The system will require an initial investment of $600,000 that will be depreciated over an eight-year period using straight-line depreciation of $75,000 per year and a zero estimated salvage value. The firms tax rate is 35% and the cost of capital for the project is 12%. What is the projects annual free cash flow (FCF) in year 2? A. $169,250 B. $206,784 C. S 186,925 D. $177,830
Expert Solution
This question has been solved!
Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.
This is a popular solution!
Trending now
This is a popular solution!
Step by step
Solved in 7 steps
Knowledge Booster
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, finance and related others by exploring similar questions and additional content below.Recommended textbooks for you
Essentials Of Investments
Finance
ISBN:
9781260013924
Author:
Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:
Mcgraw-hill Education,
Essentials Of Investments
Finance
ISBN:
9781260013924
Author:
Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:
Mcgraw-hill Education,
Foundations Of Finance
Finance
ISBN:
9780134897264
Author:
KEOWN, Arthur J., Martin, John D., PETTY, J. William
Publisher:
Pearson,
Fundamentals of Financial Management (MindTap Cou…
Finance
ISBN:
9781337395250
Author:
Eugene F. Brigham, Joel F. Houston
Publisher:
Cengage Learning
Corporate Finance (The Mcgraw-hill/Irwin Series i…
Finance
ISBN:
9780077861759
Author:
Stephen A. Ross Franco Modigliani Professor of Financial Economics Professor, Randolph W Westerfield Robert R. Dockson Deans Chair in Bus. Admin., Jeffrey Jaffe, Bradford D Jordan Professor
Publisher:
McGraw-Hill Education