Epiphany Industries is considering a new capital budgeting project that will last for three years....
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Epiphany Industries is considering a new capital budgeting project that will last for three years. Epiphany plans on using a cost of capital of 12% to evaluate this project. Based on extensive research, it has prepared the following incremental cash flow projects:
| Year | 0 | 1 | 2 | 3 |
| Sales (Revenues) |
| 100,000 | 100,000 | 100,000 |
| - Cost of Goods Sold (50% of Sales) |
| 50,000 | 50,000 | 50,000 |
| - Depreciation |
| 30,000 | 30,000 | 30,000 |
| = EBIT |
| 20,000 | 20,000 | 20,000 |
| - Taxes (35%) |
| 7000 | 7000 | 7000 |
| = unlevered net income |
| 13,000 | 13,000 | 13,000 |
| + Depreciation |
| 30,000 | 30,000 | 30,000 |
| - capital expenditures | -90,000 |
|
|
|
The free cash flow for the first year of Epiphany's project is closest to:
$43,000
$25,000
$13,000
$45,000
The NPV for Epiphany's Project is closest to:
$4,800
$39,000
$13,300
$20,400
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