6. Describe how each of the following affect the expected operating cash flow for a proposed...

6. Describe how each of the following affect the expected operating cash flow for a proposed capital budgeting project (be as specific and complete as possible):

The depreciation deduction for the building constructed to house the project.

b. the taxes paid on sale of the equipment at the end of the project.

c. the compensation paid to an existing employee who will be managing the project’s operations.

d. interest payable on debt used to finance the project.

e. uncollectible accounts receivable.

f. the initial cost of land for the project.

g. the variability in the cost of raw materials for the project.

Expert Solution

Describe how each of the following affect the expected operating cash flow for a proposed capital budgeting project (be as specific and complete as possible):

a.The depreciation deduction for the building constructed to house the project: depreciation is first reduced from the operating income to calculate the taxable profit and then added back to the after tax value of profit, due to being of non-cas nature, so higher the depriaciation, lower is the tax and higher is the tax shield also, higher is the CFO

b. the taxes paid on sale of the equipment at the end of the project: In case the equipment is sold at a profit, it results in lowerin gthe CFO due to taxes paid and if the equipment is sold at a loss, it results in tax savings.

c. the compensation paid to an existing employee who will be managing the project’s operations: This is a general expense and it reduces the CFO as it reduces the taxable profit

d. interest payable on debt used to finance the project:This is a general expense and it reduces the CFO as it reduces the taxable profit

e. uncollectible accounts receivable: This leads to bad debts, and it reduces the CFO as it reduces the taxable profit

f. the initial cost of land for the project: This is recorded in the balanceshee and doesnt impact CFO, it is a part of investing activities.

g. the variability in the cost of raw materials for the project: This impacts the cost of goods sold and thus impacts the taxable profit so higher cost leads to lower profits and therefore lower CFO if all purchases are made in cash and even if they are made on credit, it needs to be paid at some point, and in that year it will reduce the CFO.

jeff jeffy answered 2 years ago

Expected Operating Cash Flow = 25m Expected Free Cash Flow to the Firm = 20m Expected...

Expected Operating Cash Flow = 25m Expected Free Cash Flow to the Firm = 20m Expected Sustainable Growth Rate = 3% How should management decide whether its better to invest the companys cash flows to create future growth or to pay a dividend to ite shareholders?

Suppose a venture's first cash flow is expected in Year 6, and the cash flow is...

Suppose a venture's first cash flow is expected in Year 6, and the cash flow is expected to be 3,891,326. A comparable firm has earnings of 31,104,064 and a market cap of 412,501,981. Assuming a discount rate of 15%, find the present value (at Year 0) of the firm in do

Describe and explain three different cash flows: operating cash flow, investment cash flow, and cash flow...

Describe and explain three different cash flows: operating cash flow, investment cash flow, and cash flow from financing activities. What is the relative importance of each, and what factors impact your assessment? Does it vary by industry or business maturity? Imagine that you were structuring a business from the ground up--what percentage of cash flow would you target for each of these three types?

Johnson Communications is trying to estimate the Year 1 operating cash flow for a proposed project....

Johnson Communications is trying to estimate the Year 1 operating cash flow for a proposed project. The assets required for the project were fully depreciated at the time of purchase. The financial staff has collected the following information: Sales revenues $8.8 million Operating costs 4.8 million Interest expense 1.1 million Johnson has also determined that this project would cannibalize one of its other projects by $1.4 million of cash flow (before taxes) per year. The firm has a 30 percent...

Calculating Operating Cash Flows (Direct Method) Calculate the cash flow for each of the following cases....

Calculating Operating Cash Flows (Direct Method) Calculate the cash flow for each of the following cases. a. Cash paid for advertising: Advertising expense $62,000 Prepaid advertising, beginning of year 11,000 Prepaid advertising, end of year 15,000 Cash paid for advertising $Answer b. Cash paid for income taxes: Income tax expense $29,000 Income tax payable, beginning of year 7,100 Income tax payable, end of year 4,900 Cash paid for income taxes $Answer c. Cash paid for merchandise purchased: Cost of goods...

A new project is expected to generate an operating cash flow of $85,560 and will initially...

A new project is expected to generate an operating cash flow of $85,560 and will initially free up $10,475 in net working capital. Purchases of fixed assets costing $85,000 will be required to start up the project. What is the total cash flow for this project at Time zero? A) −$75,085 B) −$74,525 C) −$85,000 D) −$87,250 E) $62,250

operating cash flow. find the operating cash flow for the year for robinson and sons if...

operating cash flow. find the operating cash flow for the year for robinson and sons if it had sales of $81,200,000,,, cost of goods of $35,500,000, sales and administrative costs of $6,200,000, depreciation expense of $7,000,000, and a tax rate 0f 30%. the operating cash flow is ....... (round to the nearest dollar)

Discuss how operating cash flow could exceed operating income.

A proposed project has fixed costs of $43,000 per year. The operating cash flow at 8,000...

A proposed project has fixed costs of $43,000 per year. The operating cash flow at 8,000 units is $78,000. Required: (a) Ignoring the effect of taxes, what is the degree of operating leverage? (b) If units sold rise from 8,000 to 8,500, what will be the increase in operating cash flow? (c) What is the new degree of operating leverage?

4. A project with fixed costs of 320,000 and operating cash flow of 160,000 was expected...

4. A project with fixed costs of 320,000 and operating cash flow of 160,000 was expected to sell 11,000 units. The final results for the year were that 9,800 units were sold instead. What is the degree of operating leverage? __________________ What is the percentage change in quantity? _________________ What is the percentage change in operating cash flow? ________________ What would the operating cash flow be under the actual level of production? __________________ 7. Colby is in the furniture moving business. He has...

Question