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