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

FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
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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: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
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.
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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