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Epiphany Industries is considering a new capital budgetingproject that will last for three years. Epiphany plans on using acost of capital of 12% to evaluate this project. Based on extensiveresearch, it has prepared the following incremental cash flowprojections:Year0123Sales (Revenues)100,000100,000100,000- Cost of Goods Sold (50% of Sales)50,00050,00050,000- Depreciation30,00030,00030,000= EBIT20,00020,00020,000- Taxes (35%)700070007000= unlevered net income13,00013,00013,000+ Depreciation30,00030,00030,000+ changes to working capital-5000-500010,000- capital expenditures-90,000Q1 : Are they using MACRS? Explain.Q2 : What’s EBITDA here?
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