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A firm is considering the purchase of a machine which would represent an investment of $23...

A firm is considering the purchase of a machine which would represent an investment of $23 million, and would be depreciated in a straightline basis over 4 years. Sales are expected to be $13 million per year, and operating costs 34% of sales. The company is currently paying $3 million in interest per year, has a tax rate of 40%, and a WACC of 10%. What is the company’s free cash flow for year 1 of this project?

Enter your answer in millions of dollars, rounded to 1 decimal, and without the dollar sign. For example, if your answer is 10.5678, enter 10.6. Use the minus sign ('-') if cash flow is negative.

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Answer #1

FCF = (sales-operating cost-depr)*(1-tax rate)+depr

=(13-0.34*13-23/4)*(1-0.4)

=1.7m

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