A firm is considering the purchase of a machine which would represent an investm

Question

A firm is considering the purchase of a machine which would represent an investment of $25 million, and would be depreciated in a straightline basis over 5 years. Sales are expected to be $10 million per year, and operating costs 46% of sales. The company is currently paying $3 million in interest per year, has a tax rate of 40%, and a WACC of 10%. What is the company’s free cash flow for year 1 of this project?

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Spoon feed it to me. Assume I know nothing about this problem, becasue I wouldn't post about it if I found help elsewhere. Much appreciated :)

Explanation / Answer

Sales $ 10.00 Less: Costs $    4.60 10*46% Depreciation $    5.00 25/5 EBIT $    0.40 Less: Tax payable @ 38% $    0.16 Net income $    0.24 Add: Depreciation $    5.00 Free cash flows $5.24

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