1. XYZ Corp. expects the following revenues, cash expenses, and depreciation charges in the future:

Year	1	2	3
Revenues	$89,000	$106,000	$145,000
Cost of goods sold	$38,000	$49,000	$53,000
Selling expenses	$11,000	$13,000	$14,000
Interest expense	$21,000	$23,000	$24,000
Interest revenue	$7,000	$9,000	$11,000
Other cash operating expenses	$10,000	$11,000	$12,000
Depreciation	$9,500	$13,500	$15,000

This business is in the 22 percent tax bracket. Please compute the after-tax cash flows from operations for each of the years.

After tax operating cash flow for Year 1: $14,570 Year 2: $17,790 Year 3: $44,640

2. In addition to the estimates above the business needs 4 percent of revenues as a cash balance, 11 percent of the

cost of goods sold as an inventory balance, 6 percent of the cost of goods sold as an accounts payable balance, and

5 percent of revenues as accrued expenses balance. All these balances would be needed at the beginning of each year and

are estimated from the year-end annual estimates of revenues and cash expenses given above. The business will end at

the end of year 3 and all working capital balances will be collected (or realized) at their face value. Please calculate

the incremental investment in working capital needed for years 0,1,2 and 3, and then recalculate the cash flows for

XYZ Corp. investment.

Incremental investment in working capital Year 0___________Year 1___________ Year 2___________Year 3_________

Recalculated cash flows from operations Year 0___________Year 1___________ Year 2____________Year 3_________