Answer:
The free cash flow for year 0 will be $ -10,448,000
The free cash flow for years 1–5 will be $2,746,360
Explanation:
Free Cash Flow for the Year 0
Free Cash Flow for the Year 0 = Cost of the Machine + Transportation + Installation Charges
= -$10,400,000 - $48,000
= -$10,448,000
Free cash flows for the Years 1 – 5
Incremental free cash flows =
[(Annual Sales - Costs) x (1 – Tax Rate)] + [Depreciation x Tax Rate]
= [($4,200,000 - $1,100,000) x (1 – 0.35)] + [($10,448,000 / 5 Years) x 0.35]
= [$3,100,000 x 0.65] + [$2,089,600 x 0.35]
= $2,015,000 + $731,360
= $2,746,360
Therefore the The free cash flow for year 0 will be $ -10,448,000 and the free cash flow for years 1–5 will be $2,746,360
