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A generator costs $150 and requires $80 in maintenance for each year of its 3 year...

A generator costs $150 and requires $80 in maintenance for each year of its 3 year life. After 3 years this generator will be replaced by a new one. The generator is straight-line depreciable to zero and has no salvage value. Assume a tax rate of 35 percent and a discount rate of 15 percent. What is the Operating Cash Flow (OCF) per year associated with the generator project?

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Expert Solution

Given, generator costs $150

maintenance Cost =. $80 per year

Life = 3 years

Salvage = 0

tax rate = 35%

Discounting Rate = 15%

Particulars Year 1 Year 2 Year 3
Generator Costs -150 0 0
Maintenance -80 -80 -80
Depreciation 50 50 50
Tax Shield (Tax - 35%)             45.5             45.5             45.5
Operating Cash Flow       (184.50)         (34.50)         (34.50)
Discounting Factor (Rate - 15%)       0.86957       0.75614       0.65752
Discounted Operating Cash Flow       (160.43)         (26.09)         (22.68)

Well highlighted two answers, First one is asked in the question, but second also as discounting rate is given.

jeff jeffy answered 2 years ago
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