What is the value of incremental free cash flow

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Question: 1) Project Beta is a project which will last for 5 years and which requires an initial outlay of $5,000. This outlay will be depreciated using straight-line depreciation over the life of the project. It will generate incremental revenue of $3400 per year. The value of incremental, after-tax earnings is $1110 per year. The project will require Net Working Capital equal to 5% of incremental revenue.

What is the value of incremental free cash flow in Year 0?

2) Equipment with a book value of $10,000 will be sold at the end of a project for a salvage value of $6,000. The tax rate is 35%. What is the tax effect resulting from the profit or loss from the sale of the equipment (where a negative number means tax is payable and a positive number means that there is a tax shield)?

3) A project will incur $700 in shutdown costs the year after the completion of the project. The tax rate is 40%. What is the tax shield resulting from these tax-deductible shutdown costs (where a negative number means a cash outflow and a positive number means an incremental cash inflow)?

Reference no: EM132716315

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