Question
A firm’s accountant has generated the following income statement for an upcoming 3 year expansion project...
A firm’s accountant has generated the following income statement for an upcoming 3 year expansion project that requires a $75,000 investment. The firm’s financial consultant requires this statement in order to calculate the free cash flows. Assume a 34% tax rate and a straight-line depreciation generating $100,000 in annual revenue and $40,000 in annual fixed costs. Annual Revenue $100,000 Annual Fixed Costs $40,000
Depreciation ?
Tax ?
Net Income ?
Annual Free Cash Flow ?
Calculate the respective amounts and you must show your work for each to receive full credit:
A. Depreciation =
B. Tax =
C. Net Income =
D. Annual Free Cash Flow =
Homework Answers
Answer #1
Investment is depreciated under straight line method
Depreciation = $75,000 / 3 years = $25,000
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