1. (8 points) You plan to open your own business. The cost of plant, property and equipment is $500,000. You already have the money for the initial cost which you could invest at the same level of risk and expect to earn 10%. The projected revenue and costs for your business are present in the following table. Your tax rate is 25% and you plan to operate this business for 5-years. You plan to depreciate on a straight-line basis to a book value of zero and the salvage value is expected to be zero. If you don't start a business you plan to keep working at your current job that pays $120,000/year (pre-tax, you would have to pay 25% tax on this income). What is the free cash flow (FCF) for years of 1 to 5? What is Initial outlay? What is after-tax lost salary and what is the NPV of your business? Year 0 Year 1 S in thousands Revenue Costs 1000 700 Year 2 1000 700 Year 3 1000 700 Year 4 1000 700 Year 5 1000 700 100 100 100 Dep EBIT (Revenue - Costs - Dep) 100 200 100 200 200 200 200 1. (8 points) You plan to open your own business. The cost of plant, property and equipment is $500,000. You already have the money for the initial cost which you could invest at the same level of risk and expect to earn 10%. The projected revenue and costs for your business are present in the following table. Your tax rate is 25% and you plan to operate this business for 5-years. You plan to depreciate on a straight-line basis to a book value of zero and the salvage value is expected to be zero. If you don't start a business you plan to keep working at your current job that pays $120,000/year (pre-tax, you would have to pay 25% tax on this income). What is the free cash flow (FCF) for years of 1 to 5? What is Initial outlay? What is after-tax lost salary and what is the NPV of your business? Year 0 Year 1 S in thousands Revenue Costs 1000 700 Year 2 1000 700 Year 3 1000 700 Year 4 1000 700 Year 5 1000 700 100 100 100 Dep EBIT (Revenue - Costs - Dep) 100 200 100 200 200 200 200