Question

In: Finance

Winter Tyme, Inc., is considering building a plant to produce snow tires. The project would last...

Winter Tyme, Inc., is considering building a plant to produce snow tires. The project would last 6 years and requires an initial fixed asset investment of $5.886 million. The fixed asset will be depreciated straight-line to zero over its 6-year tax life, after which time it will be worthless. Winter Tyme paid $75,000 for a market analysis which indicates the project will generate $5,232,000 in annual sales, with costs of $2,092,800.

   

Required:
If the tax rate is 33 percent, what is the OCF for this project?

Solutions

Expert Solution

Operating cash flow = (Sales - cost- depreciation)*(1-Tax rate) +Depreciation

0 1 2 3 4 5 6
Project -5886000
Mrt. Analysis -75000
Sales 5232000 5232000 5232000 5232000 5232000 5232000
Cost -2092800 -2092800 -2092800 -2092800 -2092800 -2092800
Depreciation -981000 -981000 -981000 -981000 -981000 -981000
Operating profit 2158200 2158200 2158200 2158200 2158200 2158200
PAT 1445994 1445994 1445994 1445994 1445994 1445994
Operating cash flow 2426994 2426994 2426994 2426994 2426994 2426994

Related Solutions

Winter Tyme, Inc., produces coats and jackets for the Seattle market. The company is considering a...
Winter Tyme, Inc., produces coats and jackets for the Seattle market. The company is considering a new 3-year expansion project into the Portland market. The expansion requires an initial investment of $3.402 million in new plant and equipment. These assets will be depreciated straight-line to zero over its 3-year tax life, after which time the assets can be sold for $264,600. The expansion also requires an initial investment in net working capital of $378,000, but this investment will be recovered...
Expando, Inc., is considering the possibility of building an additional factory that would produce a new...
Expando, Inc., is considering the possibility of building an additional factory that would produce a new addition to their product line. The company is currently considering two options. The first is a small facility that it could build at a cost of $6 million. If demand for new products is low, the company expects to receive $10 million in discounted revenues (present value of future revenues) with the small facility. On the other hand, if demand is high, it expects...
Expando, Inc., is considering the possibility of building an additional factory that would produce a new...
Expando, Inc., is considering the possibility of building an additional factory that would produce a new addition to their product line. The company is currently considering two options. The first is a small facility that it could build at a cost of $6 million. If demand for new products is low, the company expects to receive $10 million in discounted revenues (present value of future revenues) with the small facility. On the other hand, if demand is high, it expects...
Gubanich Sportswear is considering building a new factory to produce aluminum baseball bats. This project would...
Gubanich Sportswear is considering building a new factory to produce aluminum baseball bats. This project would require an initial cash outlay of ​$5,000,000 and would generate annual free cash inflows of ​$1,100,000 per year for 6 years. Calculate the​ project's NPV ​given: a. A required rate of return of 9 percent b. A required rate of return of 11 percent c. A required rate of return of 13 percent d. A required rate of return of 18 percent
Gubanich Sportswear is considering building a new factory to produce aluminum baseball bats. This project would...
Gubanich Sportswear is considering building a new factory to produce aluminum baseball bats. This project would require an initial cash outlay of ​$5,000,000 and would generate annual free cash inflows of ​$1,100,000 per year for 7 years. Calculate the​ project's NPV ​given needs 7% needs 8% needs 13% needs 10% percentages need to be calculated with problem..
Emily’s Soccer Mania is considering building a new plant. This project would acquire an initial cash...
Emily’s Soccer Mania is considering building a new plant. This project would acquire an initial cash outlay of $10 million and would generate annual cash inflows of $3million per year for Years 1 through 4.In year 5 the project will acquire an investment outlay of $5,000,000. During Years 6 through 10 the project will provide cash inflows of $5million per year. Calculate the Project’s MIRR given a discount rate of 14 percent I want the answer in details not on...
Artie's Wrestling Stuff is considering building a new plant. This plant would require an initial cash...
Artie's Wrestling Stuff is considering building a new plant. This plant would require an initial cash outlay of ​$ 8 million and would generate annual free cash inflows of ​$ 1 million per year for 8 years. Calculate the​ project's MIRR ​given: a. A required rate of return of 9 percent b. A required rate of return of 12 percent c. A required rate of return of 15 percent
A) A company is considering building a new factory to produce aluminum baseball bats. this project...
A) A company is considering building a new factory to produce aluminum baseball bats. this project would require an initial cash outlay of $5,500,000 and would generate annual net cash inflows of $900,000 per year for seven years. calculate the projects NPVE using a discount rate of 8%. B) The same company is considering to expand. The expidenture requires $9,500,000 on new service equipment I would generate annual net cash inflows from reduced costs of operations that equal 4 million...
Red Royal Recycling is considering a project that would last for 2 years. The project would...
Red Royal Recycling is considering a project that would last for 2 years. The project would involve an initial investment of 104,000 dollars for new equipment that would be sold for an expected price of 104,000 dollars at the end of the project in 2 years. The equipment would be depreciated to 27,000 dollars over 7 years using straight-line depreciation. In years 1 and 2, relevant annual revenue for the project is expected to be 91,000 dollars per year and...
Red Royal Recycling is considering a project that would last for 2 years. The project would...
Red Royal Recycling is considering a project that would last for 2 years. The project would involve an initial investment of 104,000 dollars for new equipment that would be sold for an expected price of 104,000 dollars at the end of the project in 2 years. The equipment would be depreciated to 27,000 dollars over 7 years using straight-line depreciation. In years 1 and 2, relevant annual revenue for the project is expected to be 91,000 dollars per year and...
ADVERTISEMENT
ADVERTISEMENT
ADVERTISEMENT