**Ebelozieke Enterprises Project Cash Flow Projection**Ebelozieke Enterprises is evaluating the expansion of its production facilities. The company has estimated the cash flows for the first two years, acknowledging the difficulty in estimating long-term cash flows. The cash flows are given below in millions of dollars:| | Year 1 | Year 2 ||------------------|--------|--------|| **Revenue** | 121.2 | 152.7 || **Operating Expenses (other than depreciation)** | 47.6 | 56.2 || **CCA** (Capital Cost Allowance) | 21.2 | 24.9 || **Increase in Net Working Capital** | 3.3 | 8.1 || **Capital Expenditures** | 30.0 | 3.6 || **Marginal Corporate Tax Rate** | 35% | 35% |### Questionsa. **Incremental Earnings:** - What are the incremental earnings for this project for years 1 and 2? (Note: Assume any incremental cost of goods sold is included as part of operating expenses.)b. **Cash Flows:** - What are the true cash flows for this project for the first two years?### Calculation of Incremental Earnings for Year 1(Ensure to round to one decimal place)**Incremental Earnings Forecast (millions):**- **Sales:** - **Operating Expenses:**- **CCA:**- **EBIT** (Earnings Before Interest and Taxes): - **Income Tax at 35%:**- **Unlevered Net Income:**Ensure all calculations are completed to accurately represent cash flow and financial forecasting for educational purposes.

Free cash flow is the cash flow from the business after adding depreciation to net income and making…

Etobicoke Enterprises is deciding whether to expand its production facilities. Although long-term cash flows are difficult to estimate, management has projected the following cash flows for the first two y of dollars) Revenues Operating Expenses (other than depreciation) CCA Increase in Net Working Capital Capital Expenditures Marginal Corporate Tax Rate Year 1 Operating Expenses CCA EBIT Income tex at 35% Unlevered Net Income 121.2 47.6 21.2 3.3 30.3 35% S Year 2 D 152.7 56.2 42.9 a. What are the incremental earnings for this project for years 1 and 27 (Note: Assume any incremental cost of goods sold is included as part of operating expenses.) b. What are the tree cash flows for this project for the first two years? 8.1 36.6 35% a Calculate the incremental earnings for Year 1 of this project below: (Round to one decimal place.) Year 1 incremental Earnings Forecast (millions)

Etobicoke Enterprises is deciding whether to expand its production facilities. Although long-term cash flows are difficult to estimate, management has projected the following cash flows for the first two y of dollars) Revenues Operating Expenses (other than depreciation) CCA Increase in Net Working Capital Capital Expenditures Marginal Corporate Tax Rate Year 1 Operating Expenses CCA EBIT Income tex at 35% Unlevered Net Income 121.2 47.6 21.2 3.3 30.3 35% S Year 2 D 152.7 56.2 42.9 a. What are the incremental earnings for this project for years 1 and 27 (Note: Assume any incremental cost of goods sold is included as part of operating expenses.) b. What are the tree cash flows for this project for the first two years? 8.1 36.6 35% a Calculate the incremental earnings for Year 1 of this project below: (Round to one decimal place.) Year 1 incremental Earnings Forecast (millions)

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

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Same with this one: A project that increased sales was accompanied by $60,000 increase in inventory, a $25,000 increase in trade accounts receivable, and a $18,000 increase in trade accounts payable. Assuming these amounts remain constant, by how much has net working capital changed? Is it an increase or decrease in NWC? my solution = correct? Net Working Capital NWC= (current assets) -(current liabilities) NWC= (cash + cash equivalent) +( Marketable Investments)+ (trade accounts receivable) + (inventory) - (trade accounts payable) an increase in NWC leads to a decrease of cash flow Inventory $60,000 Trade accounts receivable $25,000 $85,000 trade accounts payable -$18,000 change in NWC $67,000 increase in NWC
PROJECT CASH FLOW Colsen Communications is trying to estimate the first-year cash flow (at Year 1) for a proposed project. The financial staff has collected the following infor- mation on the project: 12-2 Sales revenues $15 million Operating costs (excluding depreciation) 10.5 million Depreciation 3 million Interest expense 3 million The company has a 40% tax rate, and its WACC is 11%. a. What is the project's cash flow for the first year (t = 1)? b. If this project would cannibalize other projects by $1.5 million of cash flow before taxes per year, how would this change your answer to part a? c. Ignore part b. If the tax rate dropped to 30%, how would that change your answer to part a?
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Etobicoke Enterprises is deciding whether to expand its production facilities. Although long-term cash flows are difficult to estimate, management has projected the following cash flows for the first two years (in millions of dollars): Revenues Operating Expenses (other than depreciation) CCA Increase in Net Working Capital Capital Expenditures Marginal Corporate Tax Rate Year 1 128.5 47.2 29.9 3.1 28.7 35% Year 2 155.5 63.7 34.1 8.9 41.6 35% a. What are the incremental earnings for this project for years 1 and 2? (Note: Assume any incremental cost of goods sold is included as part of operating expenses.) b. What are the free cash flows for this project for the first two years?
Required: The MoMi Corporation's cash flow from operations before interest and taxes was $2.3 million in the year just ended, and it expects that this will grow by 5% per year forever. To make this happen, the firm will have to invest an amount equal to 17% of pretax cash flow each year. The tax rate is 21%. Depreciation was $290,000 in the year just ended and is expected to grow at the same rate as the operating cash flow. The appropriate market capitalization rate for the unleveraged cash flow is 12% per year, and the firm currently has debt of $5 million outstanding. Use the free cash flow approach to calculate the value of the firm and the firm's equity. (Enter your answer in dollars not in millions.) Value of the firm Value of the firm's equity
Prime Paints is in the process of evaluating two mutually exclusive additions to its processing capacity. The firm's financial analysts have developed pessimistic, most likely, and optimistic estimates of the annual cash inflows associated with each project. These estimates are shown in the following table. Project A Project B Initial investment (CF0) $12,900 $12,900 Outcome Annual cash inflows (CF ) Pessimistic $830 $1,540 Most likely 1,690 1,690 Optimistic 2,490 1,790 a. Determine the range of annual cash inflows for each of the two projects. b. Assume that the firm's cost of capital is 9.1%and that both projects have 18-year lives. Construct a table showing the NPVs for each project for each of the possible outcomes. Include the range of NPVs for each project. c. Do parts (a) and (b) provide consistent views of the two projects? Explain.
1. Net present value (NPV) Evaluating cash flows with the NPV method The net present value (NPV) rule is considered one of the most common and preferred criteria that generally lead to good investment decisions. Consider this case: Suppose Cold Goose Metal Works Inc. is evaluating a proposed capital budgeting project (project Beta) that will require an initial investment of $2,225,000. The project is expected to generate the following net cash flows: Year Cash Flow Year 1 $375,000 Year 2 $500,000 Year 3 $475,000 Year 4 $500,000 Cold Goose Metal Works Inc.’s weighted average cost of capital is 10%, and project Beta has the same risk as the firm’s average project. Based on the cash flows, what is project Beta’s NPV? -$2,997,487 -$297,487 -$888,360 -$772,487 Making the accept or reject decision Cold Goose Metal Works Inc.’s decision to accept or reject project Beta is independent of its decisions on other projects. If…
What is the net effect on a firm's cash flow from changes in net working capital if a new project requires: $ 30,000 increase in inventory, $ 10,000 increase in accounts receivable, $35,000 increase in machinery, and a $20,000 increase in accounts payable?
Edmonds Industries is forecasting the following income statement: Sales Operating costs excluding depreciation & amortization EBITDA Depreciation and amortization EBIT Interest $6,000,000 3,300,000 $2,700,000 300,000 $2,400,000 480,000 EBT $1,920,000 Taxes (25%) 480,000 $1,440,000 Net Income The CEO would like to see higher sales and a forecasted net income of $2,720,000. Assume that operating costs (excluding depreciation and amortization) are 55% of sales and that depreciation and amortization and interest expenses will increase by 6%. The tax rate, which is 25%, will remain the same. (Note that while the tax rate remains constant, the taxes paid will change.) What level of sales would generate $2,720,000 in net income? Round your answer to the nearest dollar, if necessary. $
PROBLEM 2:Enchanted Company’s total assets fluctuate between P230,000 and P290,000. Total fixed assets remain the same at P65,000. If Enchanted Company follows a maturity matching working capital financing policy, what is the level of its long-term financing? PROBLEM 3:Polygon Inc. planning to increase resources through additional funds needed. It has a new capital budget of 500,000, a sales of 800,000 and profit amounting to 400,000, and a payout ratio of 20%. How much is the additional funds needed?
Answers is still incorrect. It is not 14750000 or 8.75 million. The financial staff of Cairn Communications has identified the following information for the first year of the roll-out of its new proposed service: Projected sales $24 million Operating costs (not including depreciation) $11 million Depreciation $5 million Interest expense $3 million The company faces a 25% tax rate. What is the project's operating cash flow for the first year (t = 1)? Enter your answer in dollars. For example, an answer of $1.2 million should be entered as $1,200,000. Round your answer to the nearest dollar.
For a firm facing a marginal income tax rate of 35%, what is the after-tax cash flow effect of: (a) a $1,900 increase in contribution margin during the year, and (b) a $800 increase in cash operating expenses? (Do not round intermediate calculations.) (a) Effect on after-tax cash flow to contribution margin (b) Effect on after-tax cash flow to cash operating expenses

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