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Tetious Dimensions is introducing a new product that is expected to increase it net operating income by $475,000. The company has a 30% marginal tax
Tetious Dimensions is introducing a new product that is expected to increase it net operating income by $475,000. The company has a 30% marginal tax rate. This project will also produce $200,000 of depreciation per year. In addition, this project will cause the following changes:
Without the Project With the Project
Accounts Receivable $105,000 $130,000
Inventory $200,000 $280,000
Accounts Payable $90,000 $130,000
What is the projects free cash flow for year 1?
Inputs | |||||
Working Capital | see pg. 381 (step 2) | AR | |||
Depreciation | ($200,000) | Inv | |||
Tax Rate | AP | ||||
Part 1: | Year 0 | Year 1 | Year 2 | Year 3 | |
Revenues | |||||
less: Cost of good sold | |||||
less: Cash Expenses | |||||
less: Depreciation Exp | ($200,000) | ($200,000) | ($200,000) | ||
Operating Income | $475,000 | $475,000 | $475,000 | ||
Taxes | |||||
Operating Profit AT | |||||
plus: Depreciation | |||||
Operating Cash Flow | |||||
less: Capital Expend. | |||||
less: Working Capital | |||||
Free Cash Flow |
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