Biology Forums - Study Force

Use the information for the question(s) below.

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
- Depreciation	​	30,000	30,000	30,000
= EBIT	​	20,000	20,000	20,000
- Taxes (35%)	​	7000	7000	7000
= unlevered net income	​	13,000	13,000	13,000
+ Depreciation	​	30,000	30,000	30,000
+ changes to working capital	​	-5000	-5000	10,000
- capital expenditures	-90,000	​	​	​

The free cash flow for the first year of Epiphany's project is closest to:

▸ $38,000

▸ $25,000

▸ $45,000

▸ $43,000

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Use the information for the question(s) below.

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
- Depreciation	​	30,000	30,000	30,000
= EBIT	​	20,000	20,000	20,000
- Taxes (35%)	​	7000	7000	7000
= unlevered net income	​	13,000	13,000	13,000
+ Depreciation	​	30,000	30,000	30,000
+ changes to working capital	​	-5000	-5000	10,000
- capital expenditures	-90,000	​	​	​

The free cash flow for the last year of Epiphany's project is closest to:

▸ $35,000

▸ $53,000

▸ $38,000

▸ $43,000

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Use the information for the question(s) below.

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
- Depreciation	​	30,000	30,000	30,000
= EBIT	​	20,000	20,000	20,000
- Taxes (35%)	​	7000	7000	7000
= unlevered net income	​	13,000	13,000	13,000
+ Depreciation	​	30,000	30,000	30,000
+ changes to working capital	​	-5000	-5000	10,000
- capital expenditures	-90,000	​	​	​

The net present value (NPV) for Epiphany's Project is closest to:

▸ $11,946

▸ $4825

▸ $39,000

▸ $20,400

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