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
|
|
- capital expenditures
|
-90,000
|
|
|
|
The free cash flow for the first year of Epiphany's project is closest to:
- $43,000
- $25,000
- $13,000
- $45,000
The NPV for Epiphany's Project is closest to:
- $4,800
- $39,000
- $13,300
- $20,400