Question
The DEF Company is considering an investment in a new product. The information for one year...
The DEF Company is considering an investment in a new product. The information for one year is as shown in Table 3.19 . Compute the cash flow that can be used in the present value computations of this investment.
Table 3.19 New production information
Sales 200,000
Manufacturing costs of sales (includes $20,000 of depreciation) 80,000
Selling and administrative expenses (directly associated with the product) 40,000
Equipment purchases 10,000
Decrease in contribution of other products 5,000
Increase in accounts receivable 15,000
Increase in inventories 20,000
Increase in current liabilities 30,000
Income taxes associated with product income 12,000
Interest on bonds expected to be used in financing 18,000
Homework Answers
Answer #1
Formula for Free cashflow=Net Income+Interest paid+depreciation-cannibalization cost-cahnges in working capital-capital expenditure
Free cashflow=50000+18000+20000-5000-5000-10000=68,000
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