Question

Suppose ABC123XYZ Inc. is planning on a new project. The project information for Year 1 is...

Suppose ABC123XYZ Inc. is planning on a new project. The project information for Year 1 is shown in the below.

Sales revenues, each year $62,500

Depreciation $8,000

Other operating costs $25,000

Interest expense $8,000 Tax rate 35.0%

Q1. The EBIT of this project at year 1

Q2. The Cash Flow (FCF) of this project at year 1

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Answer #1

Ques-1)

Calculating the EBIT of the Project at year 1:-

Particular Amount in $
Sales 62,500
Less: Operating Costs (25,000)
Less: Depreciation (8,000)
Earning before Interest & Taxes 29,500

So, EBIT of this project at year 1 is $ 29,500

Ques-2)

Free Cash flow (FCF) = EBIT(1-Tax rate) + Depreciation - Change in Net Working Capital - Net Capital Spending

FCF = 29500(1-0.35) + 8000 -0 -0

FCF = $ 27,175

Note- As Change in Net Working Capital & Net Capital Spending are not provided assuming it to be zero.

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