Continuing from Problem 1, at the end of the first year, Chemtec is expecting sales of $250 million and costs of $125 million. T

Question

3 years ago

8

Continuing from Problem 1, at the end of the first year, Chemtec is expecting sales of $250 million and costs of $125 million. T

here are no more required investments in either net working capital or plant and equipment. However, the existing plant and equipment will experience \$50$50 million of depreciation. Assume that Chemtec's marginal tax rate on earnings is 35\5%. Assuming that all of these cash flow occur at the end of the first year, what is the first year's free cash flow

Business

1 answer:

Tanzania [10] · Answer 1 · 2022-02-19T03:53:27+03:00

Answer:

Free cash for first year is $98.75

Explanation:

Sales = $250 million

Less: Costs = $125 million

Less: Depreciation = $50 million

Earning before Tax = $75 million

Less: Tax 35% (75 x 35%) = $26.25 million

Net Income = $ 48.75 million

Free cash flow = Net Income + Non cash Expenses - Increase in working capital - Capital Expenditure

Free cash flow = 48.75 million + 50 million - 0 - 0

Free cash flow = 98.75 million