12-9 Calculating changes in net operating working capital

Duncan Motors is introducing a new product that it expects will increase its net operating income by $300,000. Duncan Motors has a 34 percent marginal tax rate. This project will also produce $50,000 of depreciation per year. In addition, this project will cause the following changes:

	Without the Project	With the Project
Accounts receivable	$33,000	$23,000
Inventory	25,000	40,000
Accounts payable	50,000	86,000

12-10 Calculating changes in net operating working capital

Racins Scooters is introducing a new product and has an expected change in net operating income of $475,000. Racin Scooters has a 34 percent marginal tax rate. This project will also produce $100,000 of depreciation per year. In addition, this project will cause the following changes:

	Without the Project	With the Project
Accounts receivable	$45,000	$63,000
Inventory	65,000	80,000
Accounts payable	70,000	94,000

12-11 Calculating changes in net operating working capital

Visible Fences is introducing a new product and has an expected change in net operating income of $900,000. Visible Fences has a 34 percent marginal tax rate. This project will also produce $300,000 of depreciation per year. In addition, this project will cause the following changes:

	Without the Project	With the Project
Accounts receivable	$55,000	$63,000
Inventory	55,000	70,000
Accounts payable	90,000	106,000

12-12 Calculating operating cash flows

Assume that a new project will annually generate revenues of $2,000,000 and cash expenses (including both fixed and variable costs) of $800,000, while increasing depreciation by $200,000 per year. In addition, the firms tax rate is 34 percent. Calculate the operating cash flows for the new project.

Requirement: Build a timeline and plot the cash flows using the sample format below.

0 1 2 3 4 5 Purchase -200,000.00 360,000.00 360,000.00 360,000.00 360,000.00 Sales Increase in AR Increase in INV Increase in AP COGS Cash OPEX EBITDA -60,000.00 -36,000.00 18,000.00 360,000.00 60,000.00 36,000.00 -18,000.00 -216,000.00 5,000.00 139,000.00 -41,700.00 -216,000.00 5,000.00 139,000.00 -41,700.00 -216,000.00 5,000.00 139,000.00 -41,700.00 -216,000.00 5,000.00 139,000.00 -41,700.00 -216,000.00 -5,000.00 139,000.00 -41,700.00 Taxes Tax Shield from DA OCF 12,000.00 109,300.00 12,000.00 109,300.00 12,000.00 109,300.00 12,000.00 109,300.00 12,000.00 187,300.00 -278,000.00