Question

9. Your pro forma income statement shows sales of $2.300,000, cost of goods sold as $980,000, depreciation expense of $600,000, and taxes of $216,000 due to a of 30%. What are your pro forma earnings? What is your pro tax rate forma free cash flow? 10. You are forecasting incremental free cash flows for Daily Enterprises. Based on the associated information in Problems 1 and 2, what are the incremental free cash flows with the new machine? software for video the working capital 11. Castle View Games would like to invest in a division to develop games. To evaluate this decision, the firm first attempts to project needs for this operation. Its chief financial officer has developed the following esti- mates (in millions of dollars) (see MyPinanceL ab for the data in Excel format) Year 15 12 Accounts Receivable 13 12 25 Accounts Payable Assuming that Castle View currently does not have any working capital invested in this division, calculate the cash flows associated with changes in working capital for the first five years of this investment. 12. In the HomeNet example from the chapter, its receivables are 15% of sales and its payables are 15% of COGS. Forecast the required investment in net working capital for HomeNet assuming that sales and cost of goods sold (CoGS) will be as follows (see MyFinancelab for the data in Excel format): Year Sales COGS 23,500 26,438 23,794 8,586 9,500 10,688 9,619 3,483 13, Elmdale Enterprises is deciding whether to expand its production facilities. Although long-term cash flows are difficult to estimate, management has projected the following cash flows for the first two years (in millions of dollars) (see MyFinancelab for the data in Excel format) fear 2 Revenugs 125 160 60 36 other than 25 5 Increase in Net Working Capital Capital Expenditures IMMargnalCorporate Tax Rate 30 35% 40 35% a. What are the incremental earnings for this project for years 1 and 2? b. What are the free cash flows for this project for years 1 and 2?

Answer 1

Solution:

Question 6:

Given that the following information about

Your pro forma income statement shows sales of $ 2,300,000​, cost of goods sold as $ 980,000​, depreciation expense of $ 600,000​, and taxes of $ 216,400 due to a tax rate of 30 %.

Calculation of Proforma Earnings:

Sales	$2,300,000
(-) Cost of goods sold	$980,000
Gross Profit	$1,320,000
(-) Depreciation	$600,000
EBIT	$720,000
Taxes (30%)	$216,000
Earnings	$504,000

Free Cash Flow = Earnings + Depreciation = $504,000+ $600,000 = $1,104,000