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Source: What yearly cash flows are relevant for this investment decision? Do not forget the effect...


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  1. What yearly cash flows are relevant for this investment decision? Do not forget the effect of taxes and the initial investment amount. Complete the table below using the detail summarized below:
    1. Investment:
      1. Initial Investment - $16M 2016, $2M 2017
      2. Working Capital - 10% of Incremental Sales
    2. Operating Savings - $2M 2017, $3.5M 2018-2022
    3. Sales Revenue - $4M 20017, $10M 2018-2022
    4. Expenses - CGS – 75% of Revenue, SG&A - 5% of Revenue
    5. Salvage:
      1. Working Capital - recoverable at cost
      2. Initial Investment - 10% or $1.8M before tax, $1.08M after taxes
    6. Depreciation – Straight Line over 6 years, no salvage, start in 2017

2016

2017

2018

2019

2020

2021

2022

Investment:

Capital Outlay

Net Working Capital (10% Sales)

Total Investment

Investment Recovery :

    Equipment Salvage

    Net Working Capital (full recovery)

Earnings before Interest and Taxes (EBIT):

Sales Revenue

Cost of Goods Sold (75% Sales)

SG&A (5% Sales)

Operating Savings

Depreciation ($18,000/6)

Total Costs & Expenses

   EBIT

- Taxes (40%)

   NOPAT

+ Depreciation

- Investment

= Free Cash Flow

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jeff jeffy answered 1 year ago
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