Question

Maytag Company is analyzing a proposed 5-year project using standard sensitivity analysis. The company expects to sell 18,000 units, ±5 percent. The expected variable cost per unit is $10.50 and the expected fixed costs are $28,000. The fixed and variable cost estimates are considered accurate within a ±5 percent range. The sales price is estimated at $16.70 a unit, ±5 percent. The project requires an initial investment of $198,000 for equipment that will be depreciated using the straight-line method to zero over the project's life. The equipment can be sold for $25,000 at the end of the project. The project requires $20,000 in net working capital up front. The discount rate is 14 percent and tax rate is 25 percent. What is the operating cash flow in year 2 under the optimistic case scenario?

		$101,218
		$97,113
		$92,346
		$87,595
		$107,431

Answer 1