7 Problem 12.2: Campbell Fabricators, Inc. is introducing a new product that is expected to increase it revenues by $1,400,000 per year over the next 3 years. The company's cost of sales run at 70% of revenues and the cash expenses are projected to be $75,000 per year. The company has a 30% marginal tax rate. This project will also require capital expenditures of $350,000 and produce $70,000 of depreciation per year. In addition, this project will cause the following changes with regards to working capital: Accounts Receivable Inventory Accounts Payable Without the Project $105,000 $200,000 $90,000 With the Project $130,000 $280,000 $130,000 Without With AR $ 105,000.00 $ Inv $ AP $ Net Working Capital What is the projects free cash flow for years 0-3? Hint: See the table on page 382 as a good example in constructing the cash flow below. 55569 for Working Capital requirements (see page 381) Change 130,000.00 $ 25,000.00 Current Assets 200,000.00 $ 280,000.00 $ 80,000.00 Current Assets 90,000.00 $ 130,000.00 $ 40,000.00 Current Liability 215,000.00 $ 280,000.00 $ 65,000.00 Current Assets-Current Liabilities Inputs Working Capital $ 65,000.00 see pg. 381 (step 2) Depreciation Tax Rate 30% Part 1: Year 0 Revenues less: Cost of good sold less: Cash Expenses less: Depreciation Exp Operating Income Taxes Operating Profit After-tax Year 1 Year 2 $1,400,000.00 $1,400,000.00| ($980,000.00) ($980,000.00) Year 3 ($75,000.00) ($75,000.00) ($70,000.00) ($70,000.00)| $275,000.00 $275,000.00 ($82,500.00) $192,500.00 when the taxes are an outflow use a neg plus: Depreciation Operating Cash Flow less: Working Capital $ less: Capital Expend. Free Cash Flow $70,000.00 (65,000.00) ($350,000.00) $262,500.00 ($415,000.00) $262,500.00 $ 65,000.00