Problem: Buck Inc. is considering an expansion project that requires an investment of $90 million in machinery. This is expected to produce sales of $140 million in year 1 and $150 million in year 2. The machinery will be depreciated over two years on a straight-line basis to a zero book value. The machinery will be scrapped after 2 years with a salvage value of $5 million. Cost of goods sold (COGS) is expected to be 40% of same year sales. Selling, general and administrative expenses are $15,000,000 per year. Year-end net working capital (NWC) is given in the table below. The corporate tax rate is 30%.
Find the free cash flows for the project by filling in the table below.
|
|
Year 0
|
Year 1
|
Year 2
|
|
NWC Needed
|
5,000,000
|
6,000,000
|
0
|
|
|
Year 0
|
Year 1
|
Year 2
|
|
Sales Revenue
|
|
|
|
|
Cost of Goods Sold
|
|
|
|
|
Fixed Operating Expense (SGA)
|
|
|
|
|
Depreciation Expense
|
|
|
|
|
EBIT
|
|
|
|
|
Taxes
|
|
|
|
|
Net (Operating) Income
|
|
|
|
|
Operating Cash Flow
|
|
|
|
|
Capital Investment & Net Salvage
|
|
|
|
|
Net Working Capital (NWC) Investment
|
|
|
|
|
Free Cash Flow
|
|
|
|