Question

In: Finance

What is the operating cash flow (OCF) for year 3 of the hair salon project that...

What is the operating cash flow (OCF) for year 3 of the hair salon project that Yellow Sand Industrial should use in its NPV analysis of the project? Yellow Sand Industrial operates a(n) medical clinic. The firm is evaluating the hair salon project, which would involve opening a hair salon. During year 3, the hair salon project is expected to have relevant revenue of 602,400 dollars, relevant variable costs of 203,700 dollars, and relevant depreciation of 97,000 dollars. In addition, Yellow Sand Industrial would have one source of fixed costs associated with the hair salon project. Yesterday, Yellow Sand Industrial signed a deal with Blue Eagle Marketing to develop an advertising campaign for use in the hair salon project. The terms of the deal require Yellow Sand Industrial to pay 25,100 dollars to Blue Eagle Blue Eagle in 3 years from today. The tax rate is 20 percent.

Solutions

Expert Solution

Compute the annual fixed cost, using the equation as shown below:

Annual fixed cost = Advertising cost/ 3 years

                              = $25,100/ 3 years

                              = $8,366.6666666

Hence, the annual fixed cost is $8,366.66666666.   

Compute the income before taxes, using the equation as shown below:

Income before taxes = Revenues – Variable cost – Depreciation – Fixed cost

                                 = $602,400 - $203,700 - $97,000 - $8,366.66666666

                                 = $293,333.333334

Hence, the income before taxes is $293,333.333334.

Compute the operating cash flow, using the equation as shown below:

Operating cash flow = {Income before taxes*(1 – Tax rate)} + Depreciation

                                  = {$293,333.3333334*(1 – 0.20)} + $97,000

                                  = $234,666.666668 + $97,000

                                  = $331,666.666668

Hence, the operating cash flow is $331,666.666668.

jeff jeffy answered 2 years ago
Next > < Previous

Related Solutions

HW15-4) What is the operating cash flow for year 3 of project A that Green Forest...
HW15-4) What is the operating cash flow for year 3 of project A that Green Forest Media should use in its NPV analysis of the project? The tax rate is 25 percent. During year 3, project A is expected to have relevant revenue of 78,000 dollars, relevant variable costs of 24,000 dollars, and relevant depreciation of 18,000 dollars. In addition, Green Forest Media would have one source of fixed costs associated with the project A. Yesterday, Green Forest Media signed...
What is the Cash flow from Assets? What is the OCF? What are the changes in...
What is the Cash flow from Assets? What is the OCF? What are the changes in NWC? What are the Net New Borrowing from Creditors and from Owners? BALANCE SHEET - 2017 & 2018 ASSETS LIABILITIES and OWNERS EQUITY 2017 2018 2017 2018 Current Assets Current Liabilities Cash 200 210 Accounts Payable 180 185 A/R 300 290 Notes Payable 230 195 Inventory 250 300 Total Current Liabilities 410 380 Total Current Assets 750 800 Long-Term Debt 245 255 Fixed Assets...
What is the operating cash flow for year 4 of project A that Platinum Water Banking...
What is the operating cash flow for year 4 of project A that Platinum Water Banking should use in its NPV analysis of the project? The tax rate is 10 percent. During year 4, project A is expected to have relevant revenue of 76,000 dollars, relevant variable costs of 25,000 dollars, and relevant depreciation of 11,000 dollars. In addition, Platinum Water Banking would have one source of fixed costs associated with the project A. Yesterday, Platinum Water Banking signed a...
What is the annual operating cash flow for a 10 year project that has annual sales...
What is the annual operating cash flow for a 10 year project that has annual sales of 590,000, its variable costs are 80% of sales and has annual fixed costs of $100,000. The project requires new equipment at a cost of 20,000 and an instulation cost of $4,000 and a plant that costs $100,000. Depreciation is under the straight line method and the equipment has an estimated life of 10 years and plant estimated life of 30 years. The tax...
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)
A project will produce an operating cash flow of $15,200 a year for four years. The...
A project will produce an operating cash flow of $15,200 a year for four years. The initial cash investment in the project will be $50,000. The net after-tax salvage value is estimated at $4,000 and will be received during the last year of the project’s life. What is the internal rate of return for this project? Should the project be accepted if the cost of capital is 10%? Group of answer choices 8.31%; No, project should be rejected 10.81%; Yes,...
A project will produce an operating cash flow of $91,500 a year for three years. The...
A project will produce an operating cash flow of $91,500 a year for three years. The initial cash outlay for equipment will be $188,000. The net aftertax salvage value of $17,000 will be received at the end of the project. The project requires $52,000 of net working capital up front that will be fully recovered. What is the net present value of the project if the required rate of return is 14 percent? A. $22,318.76 B. $19,002.37 C. $15,450.93 D....
A project will produce an operating cash flow of $295,000 a year for four years. The...
A project will produce an operating cash flow of $295,000 a year for four years. The initial cash outlay for equipment will be $721,000. The net aftertax salvage value of $72,000 will be received at the end of the project. The project requires $79,000 of net working capital that will be fully recovered when the project ends. What is the net present value of the project if the required rate of return is 15 percent? $114,372 $121,017 $128,553 $136,764 $144,915
A project will produce an operating cash flow of $445,000 a year for four years. The...
A project will produce an operating cash flow of $445,000 a year for four years. The initial cash outlay for equipment will be $1,195,000. The net aftertax salvage value of $61,000 will be received at the end of the project. The project requires 87,000 of net working capital up front that will be fully recovered. What is the net present value of the project if the required rate of return is 12 percent? $146,800.23 $181,219.28 $154,036.37 $172,811.69 $163,677.13
A project will produce an operating cash flow of $445,000 a year for four years. The...
A project will produce an operating cash flow of $445,000 a year for four years. The initial cash outlay for equipment will be $1,195,000. The net aftertax salvage value of $61,000 will be received at the end of the project. The project requires 87,000 of net working capital up front that will be fully recovered. What is the net present value of the project if the required rate of return is 12 percent? $146,800.23 $181,219.28 $154,036.37 $172,811.69 $163,677.13
ADVERTISEMENT
Subjects
ADVERTISEMENT
Latest Questions
ADVERTISEMENT