Chemtec is undertaking a project that will require an upfront investment today in net working capital, and plant and equipment (i.E., capital expenditures) of \$100$100 million and \$200$200 million, respectively. If there are no revenues or expenses expected until next year, what is the project's free cash flow today in millions of dollars?
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The project free cash flow today is -$300 million
Explanation:
The computation of the free cash flow is shown below:
= Earning before interest and taxes × (1 -Tax Rate) + Depreciation & Amortization expense - Change in Net Working Capital - net capital Expenditure
= $0 + $0 - $100 million - $200 million
= -$300 million
While computing the free cash flow, we consider the Earning after tax, depreciation, change in net working capital and the net capital expenditure
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Net working capital refers to
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Capital expenditure and revenue expenditure
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