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Expansion Project - Buck Inc

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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
EBIT
Taxes
Net (Operating) Income
Operating Cash Flow
Capital Investment & Net Salvage
Net Working Capital (NWC) Investment
Free Cash Flow

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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.

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