50.1K

Verified Solution

Link Copied!

Krandel Ltd manufactures ball bearings that it ships to its customers via cargo ship. Krandel Ltd originally planned to add 5 cargo ships to its fleet 4 years from now. Now, Krandel Ltd is expanding and needs to start using these cargo ships in 1 year, rather than four. The current cost of a cargo ship is $1,250,000 and this cost is expected to remain constant. Also, while cargo ships will last indefinitely, they will be depreciated in a straight-line over a five-year life for tax purposes. Krandel's tax rate is 35%.

What will be the incremental free cash flow in one years' time if Krandel Ltd decides to go ahead with the expansion? Pick the closest value.

Other

-$5,550,000

$0

$437,000

$310,000

-$6,250,000

What will be the incremental free cash flow in three years' time if Krandel Ltd decides to go ahead with the expansion? Pick the closest value.

$0

$310,000

$6,687,000

Other

$437,000

$5,860,000

What will be the incremental free cash flow in four years' time if Krandel Ltd decides to go ahead with the expansion? Pick the closest value.

$6,250,000

$5,550,000

$5,860,000

Other

$6,687,000

$0

What will be the incremental free cash flow in five years' time if Krandel Ltd decides to go ahead with the expansion? Pick the closest value.

-$437,000

$6,687,000

-$310,000

Other

$5,860,000

$0

What will be the incremental free cash flow in seven years' time if Krandel Ltd decides to go ahead with the expansion? Pick the closest value.

$310,000

-$437,000

-$310,000

Other

$437,000

$0

Answer & Explanation Solved by verified expert

See Answer