You are evaluating a new product. In year 3 of your analysis, you are projecting pro forma sales of $5 million and cost of goods sold of $3 million. You will be depreciating a $1 million machine for 5 years using straight-line depreciation. Your tax rate is 35%. Finally, you expect working capital to increase from $200,000 in year 2 to $300,000 in year 3. What are your pro forma earning from year 3? What are your pro forma free cash flows for year 3?
Using excel to calculate proforma earnings and free cash flow at
|Depreciation||$ 200,000.00||(Depreciation = 1000000/5)|
|EBIT||$ 1,800,000.00||(EBIT = Sales- Cogs-Depreciation)|
|TAX||$ 630,000.00||Tax=EBIT*Tax Rate|
|Earnings||$ 1,170,000.00||Earnings =EBIT-Tax|
|Net working capital||$ 100,000.00||(300000-200000)|
|free cash flow||$ 1,270,000.00||Free Cash flow=(Earnings+Depreciation-Net Working Capital)|
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