Question

Part 1 AnimalChin! Co. has decided to sell a new line of longboards: "The Veloce." These longboards will be sold for $276 per unit and have variable costs of $180 per unit. The company has spent $350,000 for a marketing study which determined that the company will sell 3,000,000 boards in year 1. Sales will stay the same until the project is discontinued in year 8. The same marketing study also mentioned that some old clients are likely to switch to the new board. Sales of the other AnimalChin! board The Classic are likely to decrease by 150,000 units each year, the price of The Classic price $280, and variable costs are $230. Space rental, marketing and advertisement costs, and administrative expenses will total $15,000,000 per year. A few months ago, the company has also spent $3,700,000.00 to test new wheels and shock pads and they recently repaired some of their machines for $1,400,000.00. Three of these machines are currently not in use, they could be used for the production of The Veloce or could be sold today for $30,000,000.00 total (their initial cost 3 years ago was $210,000,000.00 (the company is currently depreciating these assets straight-line to zero book value over 5 years). The plant and equipment investment required for this project is $700,000,000.00 and will be depreciated on a straight-line basis to a zero book value over the next 8 years. Despite depreciating to zero for tax reasons, the company believes that the market value of the equipment in 8 years will be $50,000,000.00. The company will sell the equipment. The production of The Veloce will require an immediate increase in inventory of $ 113,000,000.00 that will be returned at the end of the project. The tax rate is 40%.

Calculate the annual operating cash-flow (OCF) for the project for year 1 to year 8.

5. Based on points 1-4 fill the CFFA table and compute the Cash-flow from assets (CFFA) for Year 0 to year 8. Copy and paste from excel if needed.

Item	Year 0	Year 1	Year 2	Year 3	Year 4	Year 5	Year 6	Year 7	Year 8
OCF
?
?
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CFFA

Answer 1

Tax rate	40%
	Year-1	Year-2	Year-3	Year-4	Year-5	Year-6	Year-7	Year-8
Tons	3,000,000	3,000,000	3,000,000	3,000,000	3,000,000	3,000,000	3,000,000	3,000,000
Sale price	276	276	276	276	276	276	276	276
Variable cost	180	180	180	180	180	180	180	180
Sale	828,000,000	828,000,000	828,000,000	828,000,000	828,000,000	828,000,000	828,000,000	828,000,000
Less: Operating Cost	540,000,000	540,000,000	540,000,000	540,000,000	540,000,000	540,000,000	540,000,000	540,000,000
Contribution	288,000,000	288,000,000	288,000,000	288,000,000	288,000,000	288,000,000	288,000,000	288,000,000
Less: Fixed Cost	15,000,000	15,000,000	15,000,000	15,000,000	15,000,000	15,000,000	15,000,000	15,000,000
Less: Revenue lost- 150000*(280-230)	7,500,000	7,500,000	7,500,000	7,500,000	7,500,000	7,500,000	7,500,000	7,500,000
Less: Depreciation as per table given below	87,500,000	87,500,000	87,500,000	87,500,000	87,500,000	87,500,000	87,500,000	87,500,000
Profit before tax	178,000,000	178,000,000	178,000,000	178,000,000	178,000,000	178,000,000	178,000,000	178,000,000
Tax	71,200,000	71,200,000	71,200,000	71,200,000	71,200,000	71,200,000	71,200,000	71,200,000
Profit After Tax	106,800,000	106,800,000	106,800,000	106,800,000	106,800,000	106,800,000	106,800,000	106,800,000
Add Depreciation	87,500,000	87,500,000	87,500,000	87,500,000	87,500,000	87,500,000	87,500,000	87,500,000
Cash Profit After tax	194,300,000	194,300,000	194,300,000	194,300,000	194,300,000	194,300,000	194,300,000	194,300,000
Cost of macine		700,000,000
Depreciation		700,000,000
WDV		-
Sale price		50,000,000
Profit/(Loss)		50,000,000
Tax		20,000,000
Sale price after tax		30,000,000
Depreciation	Year-1	Year-2	Year-3	Year-4	Year-5	Year-6	Year-7	Year-8	Total
Cost	700,000,000	700,000,000	700,000,000	700,000,000	700,000,000	700,000,000	700,000,000	700,000,000
Dep Rate	12.50%	12.50%	12.50%	12.50%	12.50%	12.50%	12.50%	12.50%
Deprecaition	87,500,000	87,500,000	87,500,000	87,500,000	87,500,000	87,500,000	87,500,000	87,500,000	700,000,000
Calculation of Annual Cash flow
Year	Captial	Working captial	Operating cash	Annual Cash flow
0	(700,000,000)	(113,000,000)		(813,000,000)
1			194,300,000	194,300,000
2			194,300,000	194,300,000
3			194,300,000	194,300,000
4			194,300,000	194,300,000
5			194,300,000	194,300,000
6			194,300,000	194,300,000
7			194,300,000	194,300,000
8	30,000,000	113,000,000	194,300,000	337,300,000