Question

12. Company X manufactures technology products. It plans to expand its manufacturing

operations. Based on past data, management anticipates the first project

year of the as-yet-to-be-expanded operations to match the data in Table 7.26.

a. Compute the working capital requirement during this project year.

b. Determine the taxable income during this project year.

c. Calculate the net income during this project year.

d. Define the net cash flow from this project during the first year.

For parts b, c, d – Show your income statement

Selected Data of Company X
($)
Sales 1,500,000
Manufacturing costs
Direct materials 150,000
Direct labor 200,000
Overhead 100,000
Depreciation 200,000
Operating expenses 150,000
Equipment purchase 400,000
Borrowing to finance equipment 200,000
Increase in inventories 100,000
Decrease in accounts receivable 20,000
Increase in wages payable 30,000
Decrease in notes payable 40,000
Income taxes 272,000
Interest payment on financing 20,000

Answer 1

a

Particulars	Amount
Increase in inventory	100,000
Decrease in accounts receivable	(20,000)
Increase in wages payable	(30,000)
Decrease in notes payable	(40,000)
Working capital requirement	10,000

b,c,d

Particulars	Amount	Amount
Sales		1,500,000
Expenses:
Materials	150,000
Labor	200,000
Overhead	100,000
Depreciation	200,000
Operating expenses	150,000
Interest payment	20,000
Total expenses		820,000
Taxable income		680,000
Less: income taxes		272000
Net income		408,000
Add: depreciation		200,000
Cash flow from project		608,000