Vv-2 - Chapter 12 Answers 1 a Book value 40,000-32,000(8 years $4,000/year 8,000 Gain on sale 45,000(sale price-8,000(book value 37,000 x.34 =

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Unformatted text preview: Chapter 12 Answers 1. a. Book value: 40,000-32,000 (8 years @ $4,000/year) 8,000 Gain on sale: 45,000 (sale price)-8,000 (book value) 37,000 x .34 = $12,580 taxes associated with sale 1. b. Gain on sale: 40,000-8,000 32,000 x .34 = $10,880 taxes associated with sale 1. c. Gain on sale: 8,000-8,000 0 no taxes associated with sale 1. d. Loss on sale: 5,000-8,000 (3,000) x .34 = $1020 tax savings associated with sale 2. New sales: $30,000,000 Less: $4,500,000 (sales taken from existing product line) $25,500,000 3. FCF= EBIT(1-T)+Dep – Change in NWC Change in NWC: 18,000 + 15,000 – 24,000 = 9,000 Operating Cash Flow: 475,000 x (1 - .34) + 100,000= 413,500 Free Cash Flow: 413,500 – 9,000= 404,500 4. FCF= EBIT(1-T)+Dep. – Change in NWC Change in NWC: 8,000 + 15,000 – 16,000= 7,000 Operating Cash Flow: 600,000 x (1 - .34) + 250,000= 646,000 Free Cash Flow: 646,000 – 7,000= 639,000 5. Operating Cash Flow: (Sales – VC – FC – Dep) x (1-T) + Dep (5,000,000 – 1,500,000 – 600,000) x (1 - .4) + 600,000= 2,340,000 Operating Cash Flows are the annual cash flows from operations we compute for each year when we do an NPV or IRR. Below, the (Sales-VC-FC-Dep) is just EBIT. We then multiply EBIT times (1-tax rate) to get NOPAT. We then add back depreciation as it is a non-tax expense. If we had changes in NWC or CAPEX for each year of the project, we’d include those as well. Basically, it’s the same as free cash flow to the firm for each year. 6....
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This note was uploaded on 04/07/2011 for the course BUS M 301 taught by Professor Jimbrau during the Winter '11 term at BYU.

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Vv-2 - Chapter 12 Answers 1 a Book value 40,000-32,000(8 years $4,000/year 8,000 Gain on sale 45,000(sale price-8,000(book value 37,000 x.34 =

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