What is the free cash flow or year 2 of this replacement

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Reference no: EM133492099

Easy-Chair Corp. is considering replacing its existing equipment that is used to produce comfort recline chairs. This existing equipment was purchase 2 years ago at a base price of $100,000. Installation costs at the time for this old equipment were $5,000. The existing equipment is considered a 5-year class for MACRS. The existing equipment can be sold today for $40,000 and for $0 in 5 years. The new equipment has a purchase price of $200,000 and is also considered a 5-year class for MACRS. Installation costs for the new equipment are $10,000. It is estimated that this equipment can be sold in 5 years (end of project) for $70,000. This new equipment is more efficient than the existing one and thus savings before taxes using the new machine are $20,000 a year. This new equipment will also require additional working capital today of $12,000; this investment will be recovered at the end of the project in year 5. The company's marginal tax rate is 20% and the cost of capital is 10%.

What is the NPV of this replacement project? The following 6 questions reach the value for the answer.

For your answer, round to the nearest dollar, do not enter the $ sign, use commas to separate thousands, use a negative sign in front of first number is the cash flow is negative (do not use parenthesis to indicate negative cash flows). For example, if your answer is $3,005.87 then enter 3,006; if your answer is -$1,200.25 then enter -1,200

Question 1. What is the initial outlay (I0) for this project - the project cash flows at time = 0?

Question 2. What is the free cash flow (FCF) for year 1 of this replacement project?

Question 3. What is the free cash flow (FCF) for year 2 of this replacement project?

Question 4. What is the net operating profit plus incremental depreciation for year 5 of this replacement project?

Question 5. What is the free cash flow (FCF) for year 5 of this replacement project?

Question 6. What is the NPV of this replacement project?

Reference no: EM133492099

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