homework.Homework Score: 0 of 2 pts P12-9 (similar to) Three Sav 10 of 10 (0 com
ID: 2821419 • Letter: H
Question
homework.Homework Score: 0 of 2 pts P12-9 (similar to) Three Sav 10 of 10 (0 complete) HW Score: 0%, 0 of 20 p Question Help (Calculating changes in net operating working capital) Duncan Motors is introducing a new product and has an expected change in net operating income of $295,000 Duncan Motors has a 31 percent marginal tax rate. This year 1: project will also produce $52,000 of depreciation per year. In addition, this project wll cause the following changes in Without the ProjectWith the Project Accounts recelvable inventory Accounts payable What is the project's free cash flow in year 1 $35,000 27,000 5,000 $17,000 38,000 90,000 The free cash fhow of the project in year 1 is s(Round to the nearest dollar Enter your answer in the anower box and then click Check Answer All parts showing Clear AExplanation / Answer
Such cash flow is calculated in the following table.
Cash flow statement
Items
Amount, $
Amount,$
Net operating income (change)
295,000
Less: Tax (295,000 × 31% =)
91,450
Income after tax
203,550
Add: Depreciation
52,000
Income after tax but before depreciation
255,550
Changes in working capital:
Increase in liability – accounts payable (90,000 – 45,000 =)
45,000
Decrease in asset – receivable (35,000 – 17,000 =)
18,000
Increase in asset – inventory (38,000 – 27,000 =)
(11,000)
Net changes in working capital
52,000
Free cash flow
307,550
Answer: $307,550
Items
Amount, $
Amount,$
Net operating income (change)
295,000
Less: Tax (295,000 × 31% =)
91,450
Income after tax
203,550
Add: Depreciation
52,000
Income after tax but before depreciation
255,550
Changes in working capital:
Increase in liability – accounts payable (90,000 – 45,000 =)
45,000
Decrease in asset – receivable (35,000 – 17,000 =)
18,000
Increase in asset – inventory (38,000 – 27,000 =)
(11,000)
Net changes in working capital
52,000
Free cash flow
307,550
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