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Expansion Project - Buck Inc

1. Buck Inc. is considering an expansion project that requires an investment of $90 million in machinery.
This is expected to produce sales of $140 million in year 1 and $150 million in year 2.
The machinery will be depreciated over two years on a straight-line basis to a zero book value.
The machinery will be scrapped after 2 years with a salvage value of $5 million. Cost of goods sold (COGS) is
expected to be 40% of same year sales. Selling, general and administrative expenses are $15,000,000 per year.
Year-end net working capital (NWC) is given in the table below. The corporate tax rate is 30%.
Find the free cash flows for the project by filling in the table below.

Year 0 Year 1 Year 2
NWC Needed 5,000,000 6,000,000 0

Year 0 Year 1 Year 2
Sales Revenue
Cost of Goods Sold
Fixed Operating Expense (SGA)
Depreciation Expense
Net (Operating) Income
Operating Cash Flow
Capital Investment & Net Salvage
Net Working Capital (NWC) Investment
Free Cash Flow


Solution Summary

The solution computes Sales Revenue, Cost of Goods Sold, Fixed Operating Expense (SGA), Depreciation Expense, EBIT, Taxes, Net (Operating) Income, Operating Cash Flow, Capital Investment & Net Salvage, Net Working Capital (NWC) Investment , Free Cash Flow for an expansion project.