Com-Cat is considering expanding their current production facility. This year Com-Cat had an operating income (EBIT) of $760,000, interest expenses of $120,000, depreciation expenses of $45,000, and capital expenditures of $160,000. Next year, after the expansion is completed, operating income is expected to be $880,000, interest expenses will remain at $120,000, but depreciation will increase to $61,000. To support the expansion, cash is to expected to increase by $5,000, accounts receivable by $12,000, inventories by $8,000, and accounts payable by $7,000. What is the change in Com-Cat's net operating cash flows attributable to this project, if the tax rate is 40%?

Question

Quizplus · Accepted Answer

Solution:
NCF = ($880,000 - $760,000)(1 - 0.40) + ($61,000 - $45,000)- ($5,000 + $12,000 + $8,000 - $7,000) = $70,000

Com-Cat Is Considering Expanding Their Current Production Facility