(Calculating changes in net operating working capital) Duncan Motors is introducing a new product and has...
(Calculating changes in net operating working capital) Duncan Motors is introducing a new product and has an expected change in net operating income of $290 000. Duncan Motors has a 30 percent marginal tax rate. This project will also produce $49000 of depreciation per year. In addition, this project will cause the following changes in year 1:
Without the Project With the
Project
Accounts receivable $34,000 $21,000
Inventory $22,000 $43,000
Accounts payable $49,000 $81,000
What is the project's free cash flow in year 1?
Homework Answers
Free cash flow is calculated as follows:
Change in Net Operating Income = $290,000
Less: Tax @30% = 87,000
Income after tax = $203,000
Add: Depreciation (non-cash) = $49,000
Add: Decrease in Accounts receivable = $13,000
Less: Increase in Inventory = $21,000
Add: Increase in Accounts Payable = $32,000
Free Cash flow = $276,000
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(Calculating changes in net operating working capital) Duncan
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(Calculating changes in net operating working capital) Duncan Motors is introducing a new product and has...
(Calculating changes in net operating working capital) Duncan Motors is introducing a new product and has an expected change in net operating income of $280,000. Duncan Motors has a 30 percent marginal tax rate. This project will also produce $48,000 of depreciation per year. In addition, this project will cause the following changes in year 1: Without the Project With the Project Accounts receivable $34 comma 00034,000 $19 comma 00019,000 Inventory 28 comma 00028,000 42 comma 00042,000 Accounts payable 49...
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