Question

Selected Answer: Question 32 O out of 20 points Canyon Buff Corp is considering launch a pro t o expand the production of a new construction chemical The production in which will be placed in a warehouse that the company could have xotherwise rented out for $20.000 per year. They will borrow $200.000 from Amarillo National Bank at an interest rate of % per annum for this project. The projected financials for the lovered project in Year 1 are as follows • sales will be 100 000 • cost of goods sold will be 15.000 • SOLA expenwill be 5 000 • anual depreciation will be 25000 interest costs will be 0000 resulting from the project . average tax rate is 20 and marginal tax rate is 30% • Increase in networking capital will be 12 000 The unlevered free cash flow in Year 1 will be Instruction Type ONLY your numerical wer in the unit of dollars, NO Sinode. No commasin Round to the nearest Integer

Answer 1

the formula for unlevered free cash flow =

EBIT (Earnings before interest and tax) * (1- Taxes) + Depreciation & amortization - Capital expenditure - increase in non cash working capital.

= $55000 (1 - 0.30) + $25000 - $200000 - $12000

= (-)$148500

Notes:

1. EBIT = Revenue - cost of goods sold - SG&A expenses - depreciation

= $1000000 - 15000 - 5000 - 25000 = $55000

2. As it is a new project the applicable tax rate will be the marginal tax rate of 30%.