Calculate the projects annual free cash flow

Assignment Help Financial Management

Reference no: EM13721677

The Clayton Manufacturing Company is considering an investment in a new automated inventory system for its warehouse that will provide cash savings to the firm over the next five years. The firm’s CFO anticipates additional earnings before interest, taxes, depreciation, and amortization (EBITDA) from cost savings equal to $200,000 for the first year of operation of the center; over the next four years, the firm estimates that this amount will grow at a rate of 5% per year. The system will require an initial investment of $800,000 that will be depreciated over a five-year period using straight-line depreciation of $160,000 per year and a zero estimated salvage value.

a. Calculate the project’s annual free cash flow (FCF) for each of the next five years, where the firm’s tax rate is 35%.

b. If the cost of capital for the project is 12%, what is the projected NPV for the investment?

c. What is the minimum Year 1 dollar savings (i.e., EBITDA) required to produce a breakeven NPV = 0?

Reference no: EM13721677

Questions Cloud

The adverse effects of sweatshop labor practices : Determine at least three (3) ways in which United States' businesses can address the adverse effects of sweatshop labor practices. Provide one (1) specific example of each way that you have just determined to support your response.

Asset-amount invested-assets expected return-assets beta : Based on the allocation of dollars among the 3 assets and their expected returns, what is your portfolio's expected return? Based on the allocation of dollars among the 3 assets and their betas, what is your portfolio’s beta (NOTE: Portfolio beta is ..

Describe in detail the environmental and organizational : Write a four to six (4-6) page paper in which you: 1.Create a table where at least three (3) organizational pressures and at least three (3) environmental pressures in the organization are illustrated and rank those pressures according to their..

How does financial management vary from country to country : What are some common barriers to entry for a firm entering a new country for business? And how does financial management vary from country to country?

Calculate the projects annual free cash flow : The Clayton Manufacturing Company is considering an investment in a new automated inventory system for its warehouse that will provide cash savings to the firm over the next five years. The firm’s CFO anticipates additional earnings before interest, ..

Judgments concerning materiality on every audit : Minimizing Audit Risk" Please respond to the following: According to the text, auditors have to make judgments concerning materiality on every audit. Since the auditing standards give no formal guidance for how to determine materiality, audito..

Determine the discount payback period of this investment : An investment of $1,600,000 today yields positive cash flows of $300,000 each year for years 1 through 10. MARR is 12%. Determine the Discount Payback Period (DPBP) of this investment in years. Round your answer up to the nearest whole number of year..

Determine the best possible way to leverage facebook : •From the second e-Activity, determine the best possible way to leverage Facebook, Twitter, and other social networking sites to advertise and promote the small business of your choice. Explain your rationale.

Discuss the key elements that made the guerrilla marketing : From the first e-Activity, discuss the key elements that made the guerrilla marketing so successful. Explain your rationale.•Discuss possible best practices from the guerrilla marketing campaign that different types of small businesses could levera..

User Account

All Pages