12. You have just completed a $18,000 feasibility study for a new coffee shop in some retail space you own. You bought the space two years ago for $101,000, and if you sold it today, you would net $116,000 after taxes. Outfitting the space for a coffee shop would require a capital expenditure of $28,000 plus an initial investment of $5,100 in inventory. What is the correct initial cash flow for your analysis of the coffee shop opportunity?

13. Markov Manufacturing recently spent $12.8 million to purchase some equipment used in the manufacture of disk drives. The firm expects that this equipment will have a useful life of five years, and its marginal corporate tax rate is 21%. The company plans to use straight-line depreciation.

a. What is the annual depreciation expense associated with this equipment?

b. What is the annual depreciation tax shield?

c. Rather than straight-line depreciation, suppose Markov will use the MACRS depreciation method for the five-year life of the property. Calculate the depreciation tax shield each year for this equipment under this accelerated depreciation schedule.

d. If Markov has a choice between straight-line and MACRS depreciation schedules, and its marginal corporate tax rate is expected to remain constant, which schedule should it choose? Why?

e. How might your answer to part (d)change if Markov anticipates that its marginal corporate tax rate will increase substantially over the next five years? Note: Assume that the equipment is put into use in year 1.

14. This year, FCF Inc. has earnings before interest and taxes of $9,010,000, depreciation expenses of $700,000, capital expenditures of $1,400,000, and has increased its net working capital by $475,000. If its tax rate is 21%, what is its free cash flow?

15.Victoria Enterprises expects earnings before interest and taxes (EBIT) next year of $2 million. Its depreciation and capital expenditures will both be $311,000, and it expects its capital expenditures to always equal its depreciation. Its working capital will increase by $55,000 over the next year. Its tax rate is 21%. If its WACC is 9% and its FCFs are expected to increase at 4% per year in perpetuity, what is its enterprise value?