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A month ago
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:

Year0    1      2    3    
Sales (Revenues)100,000100,000100,000
- Cost of Goods Sold (50% of Sales)50,00050,00050,000
- Depreciation30,00030,00030,000
= EBIT20,00020,00020,000
- Taxes (35%)700070007000
= unlevered net income13,00013,00013,000
+ Depreciation30,00030,00030,000
+ changes to working capital-5000-500010,000
- 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
Textbook 

Fundamentals of Corporate Finance


Edition: 2nd
Authors:
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Answer accepted by topic starter
wrote...
A month ago
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:

Year0    1      2    3    
Sales (Revenues)100,000100,000100,000
- Cost of Goods Sold (50% of Sales)50,00050,00050,000
- Depreciation30,00030,00030,000
= EBIT20,00020,00020,000
- Taxes (35%)700070007000
= unlevered net income13,00013,00013,000
+ Depreciation30,00030,00030,000
+ changes to working capital-5000-500010,000
- 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
Answer verified by a subject expert
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A month ago
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$53,000
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wrote...
A month ago
Thanks
Answer accepted by topic starter
wrote...
A month ago
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:

Year0    1      2    3    
Sales (Revenues)100,000100,000100,000
- Cost of Goods Sold (50% of Sales)50,00050,00050,000
- Depreciation30,00030,00030,000
= EBIT20,00020,00020,000
- Taxes (35%)700070007000
= unlevered net income13,00013,00013,000
+ Depreciation30,00030,00030,000
+ changes to working capital-5000-500010,000
- capital expenditures-90,000

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

▸ $11,946

▸ $4825

▸ $39,000

▸ $20,400
Answer verified by a subject expert
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A month ago
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$11,946
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