How JustAnswer Works:
  • Ask an Expert
    Experts are full of valuable knowledge and are ready to help with any question. Credentials confirmed by a Fortune 500 verification firm.
  • Get a Professional Answer
    Via email, text message, or notification as you wait on our site.
    Ask follow up questions if you need to.
  • 100% Satisfaction Guarantee
    Rate the answer you receive.
Ask DanielleCPA Your Own Question
DanielleCPA
DanielleCPA , Certified Public Accountant (CPA)
Category: Finance
Satisfied Customers: 781
Experience:  CPA experienced in tax and financial planning
50747609
Type Your Finance Question Here...
DanielleCPA is online now
A new question is answered every 9 seconds

Calculating free cash flows - Racin Scooters is introducing

Resolved Question:

Calculating free cash flows - Racin' Scooters is introducing a new product and has an expected change in EBIT of $475,000. Racin' Scooters has a 34 percent marginal tax rate. The project will also produce $100,000 of depreciation per year. In addition the project will also cause the following changes in year 1:
W/O the project
Accounts receivable $45,000
Inventory $65,000
Accounts payable $70,000

with the project
Accounts receivable $63,000
Inventory $80,000
Accounts payable 94,000

What is the projects free cash flow in year 1?
Submitted: 5 years ago.
Category: Finance
Expert:  DanielleCPA replied 5 years ago.

Hi and welcome to Just Answer! I'm happy to help answer your Finance questions. Feel free to ask for clarification if needed.

 

EBIT(1-Tax Rate)+Depreciation+Change in Net Working Capital-Capital Expenditure

313,500+100,000-18,000-15,000+24,000=404,500

 

Change in AR: 63,000-45,000 = 18,000

Change in Inventory: 80,000-65,000=15,000

Change in AP: 94,000-70,000=24,000

DanielleCPA and other Finance Specialists are ready to help you