Question

P12-8 (similar to) Question Help (Related to Checkpoint 12.1) (Calculating changes in net operating working capital) Tetious Dimensions is introducing a new product and has an expected change in net operating income of $790,000 Tetious Dimensions has a 33 percent marginal tax rate. This project will also produce $210,000 of depreciation per year. In addition, this project will cause the following changes in year 1: Without the Project with the Project Accounts receivable Inventory Accounts payable $59,000 105.000 74,000 $93.000 178,000 125,000 What is the project's free cash flow in year 1? The free cash flow of the project in your 1 (Round to the nearest dollar) Enter your answer in the answer box and then click Check Answer Car All All parts showing

Answer 1

Please refer to below spreadsheet for calculation and answer. Cell reference also provided.

A В с D E 1 $790,000 Net Operating income before tax |Тax(33%) NOPAT 2 $260,700 $529,300 4 $210,000 Depreciation 6 7 Operating Cash Flow Investment in NWC (Cash Outflow) Free Cash Flow of the Project in year 1 $739,300 $56,000 $683,300 10 11 12 Without the Project With the Project 13 Acconts receivable $59,000 $93,000 $178,000 $125,000 14 $105,000 Inventory Accounts payable Net Working Capital (NWC) 15 $74,000 16 $90,000 $146,000 17 18 19 LO CO OY

Cell reference -

А В C D 1 Net Operating income before tax |Тax(33%) NOPAT 790000 2 C2*0.33 4 C2-C3 Depreciation 6 210000 7 Operating Cash Flow Investment in NWC (Cash Outflow) C4+C6 8 D17-C17 Free Cash Flow of the Project in year 1 -C8-C9 10 11 12 Without the Project With the Project 13 Acconts receivable Inventory Accounts payable Net Working Capital (NWC) 59000 93000 178000 125000 =D14+D15-D16 14 15 105000 74000 16 17 ЕC14+C15-С16 18 10 LO

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