The free cash flow for the first year of Epiphany's project is closest to ________
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%) 7,000 7,000 7,000
= unlevered net income 13,000 13,000 13,000
+ Depreciation 30,000 30,000 30,000
+/(-) increase/(decrease) in working capital 5,000 5,000 5,000
- capital expenditures -90,000
A) $45,600
B) $28,500
C) $38,000
D) $53,200
Answer: C
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