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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

jeff jeffy answered 3 years ago
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