Question

You are evaluating a new product. In year 3 of your​ analysis, you are projecting pro forma sales of

​$55

million and cost of goods sold of

​$33

million. You will be depreciating a

​$11

million machine for

55

years using​ straight-line depreciation. Your tax rate is

3535​%.

​Finally, you expect working capital to increase from

​$200 comma 000200,000

in year 2 to

​$300 comma 000300,000

in year 3. What are your pro forma earnings for year​ 3? What are your pro forma free cash flows for year​ 3?

Complete the following pro forma statement.  ​(Round to the nearest​ dollar.)

Pro Forma		Year 3
Sales	$

Answer 1

Answer :

Proforma of income of Year 3 :

Sales revenue	55,000,000
Less : Cost of sales	33,000,000
Gross margin	22,000,000
Less : Depreciation ( 11,000,000 / 5 )	2,200,000
Net income before tax	19,800,000
Less : Tax @ 35%	6,930,000
Net income for Year 3	12,870,000

Cash flows for Year 3 :

Net income for year 3	12,870,000
Add : Depreciation	2,200,000
Less : Working capital increase ( 300,000 - 200,000 )	100,000
Cash flows for Year 3	14,970,000