Ch12.Answers

Ch12.Answers - Chapter 12 Answers 1. a. Book value: 40,000...

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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
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0 no taxes associated with sale 1. d. Loss on sale: 5,000 -8,000 (3,000) x .34 = $1,020 tax savings associated with sale 2. New sales: $30,000,000 Less: $4,500,000 ($30M * 15% = sales cannibalization) $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:
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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. (Sales-VC-FC-Dep) is just EBIT. We then multiply EBIT by (1-tax rate) to get NOPAT. We then
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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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Ch12.Answers - Chapter 12 Answers 1. a. Book value: 40,000...

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