I need help finding the Free Cash Flow and the after tax salvage value of the equipment for the following
The main equipment required costs $200,000. The shipping and installation cost is $50,000. The equipment will be depreciated under the MACRS system using the applicable depreciation rates are 33%, 45%, 15%, and 7% respectively.
Production is estimated to last for three years, and the company will exit the market before intense competition sets in and erodes profits. The market value of the equipment is expected to be $100,000 after three years. Net working capital of $2,000 is required at the start, which will be recovered at the end of the project. The juice will be packaged in 20 oz. containers that sell for $3.00 each. The company expects to sell 150,000 units per year; cost of goods sold is expected to total 70% of dollar sales.
Weighted Average Cost of Capital (WACC)
EF common stock is currently listed at $75 per share; new preferred stock sells for $80 per share and pays a dividend of $5.00. Last year, the company paid dividends of $2.00 per share for common stock, which is expected to grow at a constant rate of 10%. The local bank is willing to finance the project at 10.5% annual interest. The company's marginal tax rate is 35%.