LEE Corporation intends to purchase equipment for $1 000 000 Scored

Question: #474

LEE Corporation intends to purchase equipment for $1,000,000. The equipment has a 5 year useful life
and will be depreciated on a straight-line basis to a salvage value of $250,000. LEEʹs marginal tax rate is 30%.

Use of the equipment is expected to change the companyʹs reported EBIT by $300,000 in year one, $350,000 in year two, $350,000 in year three, $200,000 in year four, and $150,000 in year five. Net working capital associated with the new machine is equal to 10% of EBIT. The free cash flow in year 1 is:

A) $395,000 B) $305,000 C) $330,000 D) $390,000
15) The free cash flow in year 2 is:

A) $395,000 B) $305,000 C) $330,000 D) $390,000
16) The free cash flow in year 3 is:

A) $395,000 B) $305,000 C) $330,000 D) $390,000
17) The free cash flow in year 4 is:

A) $395,000 B) $305,000 C) $330,000 D) $390,000
18) The terminal cash flow in year 5 is:

A) $255,000 B) $260,000 C) $510,000 D) $495,000

Solution: #493

LEE Corporation intends to purchase equipment for $1 000 000 Scored

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