In: Finance
The Net Income (Profit after Tax) as well as Free Cashflows for the years 0-2 is shown in the Project's Income statement below :
year | 0 | 1 | 2 |
Sales (units) | 0 | 4000000 | 4000000 |
Sales ($) | 0 | 88000000 | 88000000 |
Cost($) | 0 | 64000000 | 64000000 |
Annual Overhead($) | 0 | 1600000 | 1600000 |
Depreciation ($) | 0 | 10000000 | 10000000 |
R&D | 8000000 | ||
Profit Before Tax | -8000000 | 12400000 | 12400000 |
Less Tax @40% | -3200000 | 4960000 | 4960000 |
Profit after Tax | -4800000 | 7440000 | 7440000 |
Add: Depreciation | 0 | 10000000 | 10000000 |
New Equipment Cost | -20000000 | 0 | 0 |
Free Cashflow | -24800000 | 17440000 | 17440000 |
(Assuming that the R&D upfront is treated as expense)
Free Cashflow for the year 1 = $17.44 million (option i)