Lee corporation intends to purchase equipment for 1000000

Reference no: EM13622808

LEE Corporation intends to purchase equipment for $1,000,000. The equipment has a 5 year useful life and will be depreciated on a straight-line basis to a salvage value of $250,000. LEE?s marginal tax rate is 30%. Use of the equipment is expected to change the company?s reported EBIT by $300,000 in year one, $350,000 in year two, $350,000 in year three, $200,000 in year four, and $150,000 in year five. Net working capital associated with the new machine is equal to 10% of EBIT.

1) The free cash flow in year 1 is:

A) $395,000

B) $305,000

C) $330,000

D) $390,000

2) The free cash flow in year 2 is:

A) $395,000

B) $305,000

C) $330,000

D) $390,000

3) The free cash flow in year 3 is:

A) $395,000

B) $305,000

C) $330,000

D) $390,000

3) The free cash flow in year 4 is:

A) $395,000

B) $305,000

C) $330,000

D) $390,000

4) The terminal cash flow in year 5 is:

A) $255,000

B) $260,000

C) $510,000

D) $495,000

5). If the risk-adjusted discount rate for this project is 12%, calculate the project?s net present value.

A) $355,672

B) $369,922

C) $372,634

D) $381,782

Reference no: EM13622808

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