After spending a year and $80,000, you finally have the design of your new product ready. In order to start production, you will need $22,000 in raw materials and you will also need to use some existing equipment that you've fully depreciated, but which has a market value of $100,000. Your colleague notes that the new product could represent 10% of the company's overall sales and that 10% of overhead is $40,000. Your tax rate is 20%. As you start your analysis of the product, what should be your initial incremental free cash flow?

After spending a year and $80,000, you finally have the design of your new product ready. In order to start production, you will need $22,000 in raw materials and you will also need to use some existing equipment that you've fully depreciated, but which has a market value of $100,000. Your colleague notes that the new product could represent 10% of the company's overall sales and that 10% of overhead is $40,000. Your tax rate is 20%. As you start your analysis of the product, what should be your initial incremental free cash flow?

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Question

After spending a year and $80,000, you finally have the design of your new product ready. In order
to start production, you will need $22,000 in raw materials and you will also need to use some
existing equipment that you've fully depreciated, but which has a market value of $100,000. Your
colleague notes that the new product could represent 10% of the company's overall sales and that
10% of overhead is $40,000. Your tax rate is 20%. As you start your analysis of the product, what
should be your initial incremental free cash flow?

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