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22 June, 23:39

Amsted, Inc. is considering a project that will increase revenues by $2.5 million, cash operating expenses by $700,000, and depreciation and amortization by $300,000 during 2011. For this project, the firm will purchase $800,000 of equipment during the year while decreasing its inventory by $200,000 (with no corresponding decrease in current liabilities). The marginal tax rate for Amsted is 35 percent. What is this project's incremental after-tax free cash flow for 2011

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  1. 22 June, 23:59
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    incremental after tax cash flow for 2011: $1,145,000

    Explanation:

    Additional revenue $2,500,000

    Cash operating expenses ($700,000)

    Depreciation and amortization expenses ($300,000)

    Reduced inventories ($200,000)

    Pretax income $1,300,000

    Less taxes 35% ($455,000)

    Net income $845,000

    Add Depreciation and amort. expenses $300,000

    Free cash flow $1,145,000
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