Question

F.E

5. A firm with $3 million EBIT, $0.7 million
depreciation, a tax rate of .4, a capital expenditure of $0.8
million, and an increase in NOWC of $1.1 million will have a free
cash flow of what amount for the year? **Please answer in
units of million dollars to the closest tenth of a million**
as in $x.x million without entering the dollar sign or the million
word.

6. How much is the present value of an annuity of $3,000 dollars per year for 14 years, at an annual interest rate of 7.1 percent? Answer to the nearest cent (xxx.xx) and enter without the dollar sign.

Answer #1

**The free cash flow is computed as shown
below:**

**= EBIT (1 – tax rate) + Depreciation – Capex – Increase
in Working capital**

= $ 3 million x (1 - 0.40) + $ 0.7 million - $ 0.8 million - $ 1.1 million

**= $ 0.6 million**

**The present value is computed as shown
below:**

**Present value = Annual payment x [ (1 – 1 / (1 +
r) ^{n}) / r ]**

= $ 3,000 x [ (1 - 1 / (1 + 0.071)^{14} ) / 0.071
]

= $ 3,000 x 8.693262151

**= $ 26,079.79 Approximately**

Feel free to ask in case of any query relating to this question

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