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Project parameters

· 10% operations expansion of Google’s net property, plant, and equipment (PEE)

· 12 years estimated life

· The salvage value of the equipment will be 5% of the property, plant and equipment’s cost.

· The annual EBIT for this new project will be 18% of the project’s cost.

· Tax rate=35% in this project.

· No increases in net working capital each year.

Calculation of Cost of Project

Property Plant and Equipment= 59,719,000 ( Google balance sheet 2018)
Expansion cost= 10% from PPE =59,719,000 * 10%=$5,971,900 Salvage value= New PPE cost* 5% =5,971,900* 5%= $298,595 Straight Line Depreciation Using Straight-line method to find depreciate. The straight line depreciation formula is as follows:  Annual Depreciation Expense=( Cost of project- Salvage Value) / Estimate life (5,971,900 - 298,595)/12= 472,775 Annual Depreciation charge= 472,775 Estimation of Cash Flows

Annual earnings before interest and taxes (EBIT) for this new project

=5,971,900*18%=1,074,942

Free cash flow = Annual EBIT x (1-tax) + Depreciation + Changes in Working Capital – Capital Expenditure

Free cash flow (FCF)= 1,074,942*(1-0.35)+ 472,775+0-0

= 1,074,942-376,229.7+472,775

(1,074,942-376,229.7)=Net income= 698,712.3

698,712.3+472,775=1,171,487.3

Free cash flow for every year (1-12) = 1,171,487.3

Free cash flow for year 0 = $(5,971,900)

References

https://finance.yahoo.com/quote/GOOGL/balance-sheet/