Question

F aton Hop X P12-8 (similar to) (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 $795.000. Tetious Dimensions has a 31 percent marginal tax rate. This project will also produce $220.000 of depreciation per year. In addition, this project will cause the following changes in year 1: Without the Project with the Project Accounts receivable ΙΠΠΟΥ Accounts payable $54,000 103.000 73.000 $87.000 184,000 123.000 What is the project's free cash fow in year 1? The tree cash flow of the project in year 1 is 5 Pound to the nearest dollar) Enter your answer in the answer box and then click Check Answer. Check Answer All parts showing Clear All

Answer 1

Change in Operating Income	795,000
Less: Tax	246,450
Income after tax	548,550
Add: Depreciation	220,000
Less: increase in working capital	64,000
Free cash flow	704,550
Working capital = current assets - Current Liabilities
	Without	With
Working capital	84000	148000

1 Change in Operating Income 2 Less: Tax 3 Income after tax 4. Add: Depreciation 5 Less: increase in working capital 6 Free cash flow 795000 =B1*31% =B1-B2 220000 =C10-B10 =B3+B4-B5 8 Working capital = current assets - Current Liabilities Without With =54000+103000-73000 =87000+184000-123000 10 Working capital