In: Finance
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? |
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 |