INTERMEDIATE CORPORATE FINANCE (FIN 304) FUNDAMENTAL AND POWERFUL CONCEPTS 1. Fundamental Concept 01: FCF lep: 3,000,000 Suppose you have a project that is expected to increase your company's sales by $18 and COGS from the current $54 million to $61.50 million. The operating costs excluding depreciation is expected to be $3 million. The project requires a new piece of equipment that costs $3 million today. You use straight line deprecation to depreciate the equipment to a book value of zero in ten years. You start with an initial NWC of $250,000 and you expect the NWC to grow by 8% in year one. Your marginal tax rate is 20%. Calculate your expected FCF in year one. sales 19.000,000 sales -C095 gross profit NWCT 250.000.08 -op exp 20.000 - depoxp 270.000 EBIT -250000 10 300.00 NC C095: 61.500,000 op:3,000,000 del: 300, 000 EBIT: 40.200,000 tax gov0,000 ATEBIT: 32160,000 20,000 FCF - 32,160,000 sales: 18 + 200,000 32,460,000 - 20,000 FCF: EBIT (I-T )+dep-increase NwC 40,200,000(1-20)+300000 - 20,000 FCF = 32.440,000 32,44 9000 02. ATSY