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

Question

Nick

Business

17 January, 19:21

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

+2

Answers (1)

Know the Answer?

Zion Graham · Answer 1

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