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DanielleCPA, Certified Public Accountant (CPA)
Category: Finance
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Experience:  CPA experienced in tax and financial planning
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# 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.

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