Question

You are trying to assess how different depreciation methods will affect the free cash flows of a project for you company. The current forecasts for year 1 of the project are in the table below. Assume that you can increase the depreciation expense by $17 million in year 1. By how much would the free cash flow in year 1 change as a result? Express your result in $-millions and round to two decimals (do not include the $-sign in your answer). Enter increases in free cash flows as positive numbers, decreases as negative numbers.

Project Forecasts for Year 1 (in $ millions)

Sales	157
Cost of sales	47
Selling, general and administrative expenses	8
Depreciation	26
Increase in Net Working Capital	5
Capital expenditures	33
Marginal corporate tax rate	28%

Answer 1