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Year 1 Year 2 Revenues 128.9 151.6 COGS and Operating Expenses (other than depreciation) 49.6 52.7...

Year 1 Year 2

Revenues 128.9 151.6

COGS and Operating Expenses (other than depreciation) 49.6 52.7

Depreciation 24.9 43.5

Increase in Net Working Capital 3.4 8.1

Capital Expenditures 27.3 43.2

Marginal Corporate Tax Rate 35% 35%

a. What are the incremental earnings for this project for years 1 and​ 2?​ (Note: Assume any incremental cost of goods sold is included as part of operating​ expenses.)

b. What are the free cash flows for this project for years 1 and​ 2?

Incremental Earnings Forecast (millions)

Year 1

Sales

$

Operating Expenses

$

Depreciation

$

EBIT

$

Income tax at 35%

$

Unlevered Net Income

$

Solutions

Expert Solution

Year 1

Year 2

Revenues

128.9

151.6

COGS and Operating Expenses (other than depreciation)

49.6

52.7

Depreciation

24.9

43.5

Increase in Net Working Capital

3.4

8.1

Capital Expenditures

27.3

43.2

Marginal Corporate Tax Rate

35%

35%

a. What are the incremental earnings for this project for years 1 and​ 2?​

Year 1

Year 2

Revenues

128.9

151.6

- COGS and Operating Expenses (other than depreciation)

49.6

52.7

- Depreciation

24.9

43.5

= incremental earning before tax

54.4

55.4

- Tax expenses @ 35%

19.04

19.39

= Incremental earning (earning after taxes)

35.36

36.01

b. What are the free cash flows for this project for years 1 and​ 2?

Formula for Free cash flow

Revenue

- Cogs and Operating Expenses ( include depreciation)

= EBIT (earning before interest and taxes)

- taxes

= Net income

+ depreciation

- increase in NET working capital

- CAPEX

Calculation

Year 1

Year 2

Revenues

128.9

151.6

- COGS and Operating Expenses (other than depreciation)

49.6

52.7

- Depreciation

24.9

43.5

= EBIT (earning before interest and taxes)

54.4

55.4

- Tax expenses @ 35%

19.04

19.39

= Net income

35.36

36.01

+ depreciation

24.9

43.5

- increase in NET working capital

3.4

8.1

- CAPEX (Capital Expenditures)

27.3

43.2

Free Cash Flow (FCF)

29.56

28.21

jeff jeffy answered 1 year ago
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