Question

Consider the following projected accounting information regarding a proposed new project:

	Year 0	Year 1	Year 2	Year 3
	2019	2020	2021	2022
Equipment purchase	$70,000	$0	$0	$0
Working Capital (account level)	15,000	12,000	8,000	0
Revenues		80,000	96,000	88,000
Expenses		30,000	36,000	33,000
Depreciation		12,500	12,500	12,500
Profit Before Taxes		37,500	47,500	42,500
Taxes (@ 35%)		13,125	16,625	14,875
Net profit		24,375	30,875	27,625

A. Calculate the Year 0 cash flow from Property, Plant, and Equipment.

B. Calculate the Year 2 cash flow from operations.

C. Calculate the Year 3 cash flow from change in net working capital.

Answer 1

A]	Year 0 Cash flow from PPE =	$         -70,000
B]	Year 2 Cash flow from operations:
	Net profit	$           30,875
	Add: Depreciation	$           12,500
	Cash flow from operations	$           43,375
C]	Cash flow from change in NWC = Ending NWC-Beginning NWC = 0-8000 =	$            -8,000
		[Reduction in NWC]