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: The free cash flow for the first year of Epiphany's project is closest to ________.

Question

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:  The free cash flow for the first year of Epiphany's project is closest to ________.

Quizplus · Accepted Answer

To calculate the free cash flow, we need to subtract the incremental expenses from the incremental revenues for each year of the project. Using the provided incremental cash flow projections, we can calculate the free cash flow for the first year as follows:

Free cash flow year 1 = Incremental revenue year 1 - Incremental expenses year 1 
= $120,000 - $82,000 
= $38,000

Therefore, the closest option to the free cash flow for the first year of Epiphany's project is option C) $38,000.

Epiphany Industries Is Considering a New Capital Budgeting Project That