Giant Corp

question 4

Multiple Choice

Giant Corp.is considering a project that requires a $1,500 initial cost for a new machine that will be depreciated straight line to a salvage value of 0 on a 5-year schedule.The project will require a one-time increase in the level of net working capital of $300.The project will generate an additional $1,600 in revenues and $700 in operating expenses each year.The project will end at the end of year 2,at which time the machinery is expected to be sold for $800.Giant's tax rate is 50%.In a discounted cash flow analysis of this project,what would be the projected Year 0 free cash flow?

• A) -$1,200
• B) -$1,500
• C) -$1,800
• D) -$2,100

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