Use the information for the question(s)below.
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

Use the information for the question(s)below.
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

The free cash flow for the first year can be calculated as follows:
FCF1 = EBIT1 - Taxes1 + Depreciation1 - CapEx1 - ∆Net Working Capital1
FCF1 = $80,000 - ($80,000 x 0.35) + $25,000 - $60,000 - ($35,000 - $28,500)
FCF1 = $80,000 - $28,000 + $25,000 - $60,000 - $6,500
FCF1 = $10,500
Therefore, the closest answer choice is C) $32,225.

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