{[ promptMessage ]}

Bookmark it

{[ promptMessage ]}

vv-2 - Chapter 12 Answers 1 a Book value 40,000-32,000(8...

This preview shows pages 1–4. Sign up to view the full content.

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

This preview has intentionally blurred sections. Sign up to view the full version.

View Full Document
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.

This preview has intentionally blurred sections. Sign up to view the full version.

View Full Document
This is the end of the preview. Sign up to access the rest of the document.

{[ snackBarMessage ]}