High End Chocolates is introducing a new product that has an expected EBIT of $4

Question

High End Chocolates is introducing a new product that has an expected EBIT of $475,000. The project will also produce $100,000 of depreciation per year. The project will also cause the following changes in year

Without The Project

With the Project

Accounts Receivable

$45,000

$63,000

$65,000

$80,000

$70,000

$94,000

1: Assuming that the marginal tax rate is 34%, what is the project's free cash flow in year 1?

Please show all work of how you checked this aswer.

Check Figure - $404,500

Without The Project

With the Project

Accounts Receivable

$45,000

$63,000

Inventory

$65,000

$80,000

Accounts Payable

$70,000

$94,000

Explanation / Answer

..

We know,

Free Cash Flow = Cash Flow from Operating Activities

Particulars Amount($) EBIT 475000 (-)Tax@34% 161500 PAT 313500 (+)Depreciation 100000 Cash Flow from Operating Activities Before Adjustment for Working Capital Changes 413500 Adjustment for Woking Capital Changes (-)Increase in Accounts Receivable 18000 (-)Increase in Inventory 15000 (+)Increase in Accounts Payable 24000 Cash Flow from Operating Activities 404500

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