Revenues - Manufacturing Expenses - Marketing Expenses - Depreciation =EBIT - Taxes (20%) =Unlevered net income +Depreciation - Additions to Net Working Capital - Capital Expenditures =Free Cash Flow Year 0 -9 Years 1 to 10 3.7 -0.4 -0.25 -0.5 2.55 -0.51 2.04 +0.5 -0.2 2.34
Revenues - Manufacturing Expenses - Marketing Expenses - Depreciation =EBIT - Taxes (20%) =Unlevered net income +Depreciation - Additions to Net Working Capital - Capital Expenditures =Free Cash Flow Year 0 -9 Years 1 to 10 3.7 -0.4 -0.25 -0.5 2.55 -0.51 2.04 +0.5 -0.2 2.34
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Transcribed Image Text:Revenues
- Manufacturing Expenses
- Marketing Expenses
- Depreciation
=EBIT
- Taxes (20%)
=Unlevered net income
+Depreciation
- Additions to Net Working Capital
- Capital Expenditures
=Free Cash Flow
Year 0
-9
Years 1 to 10
3.7
-0.4
-0.25
-0.5
2.55
-0.51
2.04
+0.5
-0.2
2.34

Transcribed Image Text:Panjandrum Industries, a manufacturer of industrial piping, is evaluating whether it should expand into the sale of
plastic fittings for home garden sprinkler systems. It has mad the above estimates of free cash flows resulting
from such a decision (all quantities in millions of dollars). There are some concerns that estimates of
manufacturing expenses may be low, due to the rising cost of raw materials. What is the break-even point for
manufacturing expenses, if all other estimates are correct and the cost of capital is 9%?
A. $1.40 million
B. $1.29 million
OC. $1.64 million
OD. $1 17 million.
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