Mike Mulligan wants to expand his heavy equipment business into excavation. He plans to buy a used excavator for $300,000. The excavator requires an inventory of spare parts worth $ 10,000. These investments will occur immediately. Mulligan will operate the excavation business for two years and expects EBITDA of $200,000 at the end of each year. He will close his business at the end of the second year, sell the equipment for $100,000 and liquidate the inventory of spare parts. Mulligan pays a tax rate of 25%. Using this information, compute the appropriate values for operating cash flow, investments in net working capital, CAPEX and free cash flow for each year of the project.

Mike Mulligan wants to expand his heavy equipment business into excavation. He plans to buy a used excavator for $300,000. The excavator requires an inventory of spare parts worth $ 10,000. These investments will occur immediately. Mulligan will operate the excavation business for two years and expects EBITDA of $200,000 at the end of each year. He will close his business at the end of the second year, sell the equipment for $100,000 and liquidate the inventory of spare parts. Mulligan pays a tax rate of 25%. Using this information, compute the appropriate values for operating cash flow, investments in net working capital, CAPEX and free cash flow for each year of the project.

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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