Question
In: Finance
Currently, the sales of a company is $12,800,000 per year: price per unit $12.8; units sold...
Currently, the sales of a company is $12,800,000 per year: price per unit $12.8; units sold 1,000,000 per year; direct cost per unit $9.60; A/R 25% of $ sales (ignore A/P); inventory 25% of direct cost; cash operating expense $890,000 per year; annual depreciation $600,000; tax rate 34%; capital expenditure is zero. Now you are estimating the free cash flow for the next year when the unit sales price changes to $15.36, thus changing $ sales; however, the number of units sold remains unchanged and other information above remains unchanged. What is your estimated free cash flow for the next year?
Group of answer choices
-1,759,400
-3,421,800
-2,821,800
2,178,200
2,778,200
Solutions
Expert Solution
| Answer | ||
| Particulars | Next Year | Current Year |
| Units | 1000000 | 1000000 |
| Sale Price | $ 15.36 | $ 12.80 |
| Direct Cost | $ 9.60 | $ 9.60 |
| Sales | $ 15,360,000.00 | $ 12,800,000.00 |
| Direct Cost | $ 9,600,000.00 | $ 9,600,000.00 |
| Cash Operating Expenses | $ 890,000.00 | $ 890,000.00 |
| Depreciation | $ 600,000.00 | $ 600,000.00 |
| Profit | $ 4,270,000.00 | $ 1,710,000.00 |
| Tax@34% | $ 1,451,800.00 | |
| Change in Inventory | ||
| Closing Inventory | $ 2,400,000.00 | $ 2,400,000.00 |
| Opening Inventory | $ 2,400,000.00 | |
| $ - | ||
| Cash Received from A/R | ||
| Closing Receivables | $ 3,840,000.00 | $ 3,200,000.00 |
| Opening Receivables | $ 3,200,000.00 | |
| Sales | $ 15,360,000.00 | |
| Cash Received from A/R | $ 14,720,000.00 | |
| Direct Cost | $ 9,600,000.00 | |
| Cash Opreating Expenses | $ 890,000.00 | |
| Taxes Paid | $ 1,451,800.00 | |
| Net free cash flows | $ 2,778,200.00 | |
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