Racin scooters is introducing a new product and has an expected change in net op

Question

Racin scooters is introducing a new product and has an expected change in net operating income of $455,000. Racin Scooters has a 31% marginal tax rate. This project will also produce $95,000 of depreciaion per year. In addition the project will also cause the following changes in year 1:

Accounts receivable Inventory Accounts payable Without the Project $43,000 62,000 67,000 With the Project $57,000 74,000 92,000 3 What is the project's free cash flow in year 1? The free cash flow of the project in year 1 is . (Round to the nearest dollar.)

Explanation / Answer

Net operating income $      455,000.00 Add: Depreciation $        95,000.00 Less: increase in accounts receivables $        14,000.00 Less: increase in inventory $        12,000.00 Add: Increase in accounts payable $        25,000.00 Free cash flows to Firm (FCFF) $      549,000.00

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