Continuing from Problem 1, at the end of the first year, Chemtec is expecting sa

Question

Continuing from Problem 1, at the end of the first year, Chemtec is expecting sales of $250 million and costs of $125 million. There are no more required investments in either net working capital or plant and equipment. However, the existing plant and equipment will experience $50 million of depreciation. Assume that Chemtec's marginal tax rate on earnings is 35%. Assuming that all of these cash flow occur at the end of the first year, what is the first year's free cash flow? *Make sure to input all currency answers without any currency symbols or commas, and use two decimal places of precision.

Explanation / Answer

Answer: First Year's Free Cash flow = $98.75

The workiung is given below:

Sales                                                       250.00

Less: Costs                              125.00

Less Depreciation                                       50.00

Profit before tax 75.00

Tax @ 35%                                                 26.25

Profit after tax    48.75

AddL Depreciation    50.00

Free Cash Flow    98.75   

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