Question

Question 32 Save Answ 20 points Canyon Buff Corp. is considering launch a project Pi to expand the production of a new construction chemical. The production line which will be placed in a warehouse that the company could have otherwise rented out for S20,000 per year. They will borrow $200,000 from Amarillo National Bank at an interest rate of 5% per annum for this project. The projected financials for the levered project in Year 1 are as follows: sales will be 100,000 cost of goods sold will be 15,000 SG&A expense will be 5,000 annual depreciation will be 25,000 interest costs will be $30,000 resulting from the project average tax rate is 20 % and marginal tax rate is 30% increase in net working capital will be 12,000 The unlevered free cash flow in Year 1 will be $ Instruction: Type ONLY your numerical answer the unit of dollars, NO $ sign needed, No comma sign. Round it to the nearest integer

Answer 1

Sales                                                                        $100,000

Less: Cost of Goods Sold                                       $15,000

Less: SG&A Expense                                                $5,000

EBITDA                                                                     $80,000

Less: Depreciation Expense                                 $25,000

Earnings before Interest and taxes (EBIT)          $55,000

Less: Interest expenses                                          $30,000

Taxable Income                                                       $25,000

Less: Taxes (tax rate =20% of taxable income)     $5,000                               

Net Income                                                                $20,000

EBITDA is Earnings before Interest, taxes, depreciation and amortization

Unlevered free cash flow = EBITDA−CAPEX−Working Capital−Taxes

Where,

EBITDA = $80,000

Capital expenditure (CAPEX) = $20,000 (The production line which will be placed in a warehouse cost)

Increase in Working Capital =$12,000

Taxes = $5,000

Therefore,

Unlevered free cash flow = EBITDA−CAPEX−Working Capital−Taxes

= $80,000 - $20,000 - $12,000 - $5,000

=$43,000