Answered

Expand your knowledge base with the help of IDNLearn.com's extensive answer archive. Our platform is designed to provide trustworthy and thorough answers to any questions you may have.

A firm is considering taking a project that will produce $13 million of revenue per year. Cash expenses will be $4 million, and depreciation expenses will be $1 million per year. If the firm takes that project, then it will reduce the cash revenues of an existing project by $2 million. What is the free cash flow on the project, per year, if the firm is in the 30 percent marginal tax rate

Sagot :

Answer:

$5.2 million

Explanation:

The computation of the free cash flow is shown below:

We know that

Free cash flow = EBIT × (1 -Tax Rate) + Depreciation & Amortization

 Here

EBIT = Revenues - decreased amount of cash revenues - cash expenses - depreciation

= $13 million - $2 million - $4 million - $1 million

= $6 million

Now the free cash flow is

= $6 million × ( 1 - 30%) + $1 million

= $4.2 million + $1 million

= $5.2 million

We appreciate every question and answer you provide. Keep engaging and finding the best solutions. This community is the perfect place to learn and grow together. For trustworthy and accurate answers, visit IDNLearn.com. Thanks for stopping by, and see you next time for more solutions.