Section I. Calculate the change in EBIT, Taxes, and Depreciation (this becomes an input in the calculation of Operating Cash Flow in Section II).

Year
Units Sold		70,000	120,000	120,000	80,000	70,000
Sale Price		$300	$300	$300	$300	$250
Sales Revenue		$21,000,000	$36,000,000	$36,000,000	$24,000,000	$17,500,000
Less: Variable Costs		9,800,000	16,800,000	16,800,000	11,200,000	9,800,000
Less: Fixed Costs		$700,000	$700,000	$700,000	$700,000	$700,000
Equals: EBDIT		$10,500,000	$18,500,000	$18,500,000	$12,100,000	$7,000,000
Less: Depreciation		$3,000,000	$3,000,000	$3,000,000	$3,000,000	$3,000,000
Equals: EBIT		$7,500,000	$15,500,000	$15,500,000	$9,100,000	$4,000,000
Taxes (@34%)		$2,550,000	$5,270,000	$5,270,000	$3,094,000	$1,360,000

Section II. Calculate Operating Cash Flow (this becomes an input in the calculation of Free Cash Flow in Section IV).

Operating Cash Flow:
EBIT		$7,500,000	$15,500,000	$15,500,000	$9,100,000	$4,000,000
Minus: Taxes		$2,550,000	$5,270,000	$5,270,000	$3,094,000	$1,360,000
Plus: Depreciation		$3,000,000	$3,000,000	$3,000,000	$3,000,000	$3,000,000
Equals: Operating Cash Flow		$7,950,000	$13,230,000	$13,230,000	$9,006,000	$5,640,000

Section III. Calculate the Net Working Capital (this becomes an input in the calculation of Free Cash Flows in Section IV)

Change in Net Working Capital:
Revenue:		$21,000,000	$36,000,000	$36,000,000	$24,000,000	$17,500,000
Initial Working Capital Requirement	$200,000
Net Working Capital Needs:		$2,100,000	$3,600,000	$3,600,000	$2,400,000	$1,750,000
Liquidation of Working Capital						$1,750,000
Change in Working Capital:	$200,000	$1,900,000	$1,500,000	$0	($1,200,000)	($2,400,000)

Section IV. Calculate Free Cash Flow (using information calculated in Sections II and III, in addition to the Change in Capital Spending).

Free Cash Flow:
Operating Cash Flow		$7,950,000	$13,230,000	$13,230,000	$9,006,000	$5,640,000
Minus: Change in Net Working Capital	$200,000	$1,900,000	$1,500,000	$0	($1,200,000)	($2,400,000)
Minus: Change in Capital Spending	$15,000,000	$0	$0	$0	$0	$0
Free Cash Flow:	($15,200,000)	$6,050,000	$11,730,000	$13,230,000	$10,206,000	$8,040,000
NPV	$17,461,989
PI	2.15
IRR	45%

Should accept project

10-13A

Section I. Calculate the change in EBIT, Taxes, and Depreciation (this becomes an input in the calculation of Operating Cash Flow in Section II).

Year
Units Sold		80,000	100,000	120,000	70,000	70,000
Sale Price		$250	$250	$250	$250	$250
Sales Revenue		$20,000,000	$25,000,000	$30,000,000	$17,500,000	$14,000,000
Less: Variable Costs		10,400,000	13,000,000	15,600,000	9,100,000	9,100,000
Less: Fixed Costs		$300,000	$300,000	$300,000	$300,000	$300,000
Equals: EBDIT		$9,300,000	$11,700,000	$14,100,000	$8,100,000	$4,600,000
Less: Depreciation		$1,400,000	$1,400,000	$1,400,000	$1,400,000	$1,400,000
Equals: EBIT		$7,900,000	$10,300,000	$12,700,000	$6,700,000	$3,200,000
Taxes (@34%)		$2,686,000	$3,502,000	$4,318,000	$2,278,000	$1,088,000

Section II. Calculate Operating Cash Flow (this becomes an input in the calculation of Free Cash Flow in Section IV).

Operating Cash Flow:
EBIT		$7,900,000	$10,300,000	$12,700,000	$6,700,000	$3,200,000
Minus: Taxes		$2,686,000	$3,502,000	$4,318,000	$2,278,000	$1,088,000
Plus: Depreciation		$1,400,000	$1,400,000	$1,400,000	$1,400,000	$1,400,000
Equals: Operating Cash Flow		$6,614,000	$8,198,000	$9,782,000	$5,822,000	$3,512,000

Section III. Calculate the Net Working Capital (this becomes an input in the calculation of Free Cash Flows in Section IV)

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