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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