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Mike Mulligan wants to expand his heavy equipment business into excavation. He plans to buy...

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Accounting

Mike Mulligan wants to expand his heavy equipment business into excavation. He plans to buy a used excavator for $300,000. The excavator requires an inventory of spare parts worth $10,000. These investments will occur immediately. Mulligan will operate the excavation business for two years and expects EBITDA of $200,000 at the end of each year. He will close his business at the end of the second year, sell the equipment for $100,000 and liquidate the inventory of spare parts. Mulligan pays a tax rate of 25%. Using this information, compute the appropriate values for operating cash flow, investments in net working capital, CAPEX and free cash flow for each year of the project.

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