Casa Grande Farms is considering purchasing multiple tractors for a total purchase price of $540,000....
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Casa Grande Farms is considering purchasing multiple tractors for a total purchase price of $540,000. These tractors are expected to generate EBITDA of $250,000 for each of the next three years. Casa Grande Farms has a 21% tax rate and has a cost of capital of 10%.
Assume that Casa Grande Farms is planning to sell the tractors after two years, when their book value is $119,988, for a total price of $180,000. What is the effect on free cash flow in the year they are sold?
A. A cash outflow of $60,012
B. A cash inflow of $60,012
C. A cash inflow of $47,949
D.A cash outflow of $47,949
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