Your company is developing a new textbook for FIN 301 and you paid your current FIN 301 instructor $700,000 for his input about the feasibility of such a product.The project would involve initial capital investment of $1,200,000 and installation costs related to the capital expenditures of $600,000. The project would also necessitate an increase in net workingcapital of $200,000 at the beginning of the project.You can straight line depreciate any depreciable expenses to zero over the three-year life of the project, and you don't expect the capital investment to be sold at the end of the project.Each year, you estimate you will receive $3,000,000 in sales revenue from your awesome textbook. Variable product and selling costs associated with these sales are expected to be 40% of revenuein each of those years. The fixed costs in each of the three years of the project will be $500,000. The corporate tax rate is 40%.Calculate the total year 0 cash flows associated with the project.$Calculate the year 1 EBIT.$Calculate the TOTAL year 1 cash flows associated with the project.$Calculate the TOTAL year 3 cash flows associated with the project.

Free cash flow is that amount which is earned by the investor from the project. It is the net amount…

Answered: Your company is developing a new…

Excel Applications for Accounting Principles

4th Edition

ISBN:9781111581565

Author:Gaylord N. Smith

Publisher:Gaylord N. Smith

Chapter26: Capital Budgeting (capbud)

Section: Chapter Questions

Problem 5R

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