Question

In: Finance

A project will generate sales of $52,900 each. The variable costs are $13,506 and the fixed...

A project will generate sales of $52,900 each. The variable costs are $13,506 and the fixed costs are $13,079. The project will use an equipment worth $111,251 that will be depreciated on a straight-line basis to a zero book value over a 9-year life of the project. If the tax rate is 23%, what is the operating cash flow?

Note: Enter your answer rounded off to two decimal points.

Solutions

Expert Solution

Time(years) 0 1 2 3 4 5 6 7 8 9
Sales ($) 52900 52900 52900 52900 52900 52900 52900 52900 52900
Less: Fixed Cost($) 13079 13079 13079 13079 13079 13079 13079 13079 13079
Less: Variable Cost($) 13056 13056 13056 13056 13056 13056 13056 13056 13056
After tax Cashflow($) 20609.05 20609.05 20609.05 20609.05 20609.05 20609.05 20609.05 20609.05 20609.05
Investment($) -111251
Depreciation($) 12361.22 12361.22 12361.22 12361.22 12361.22 12361.22 12361.22 12361.22 12361.22
Depreciation Tax shield($) 2843.08 2843.08 2843.08 2843.08 2843.08 2843.08 2843.08 2843.08 2843.08
Net Cashflow -111251 23452.13 23452.13 23452.13 23452.13 23452.13 23452.13 23452.13 23452.13 23452.13

Net Cashflow = Depreciation Tax Shield + After Tax Cashflow + Investment

After Tax Cashflow = (Sales - Fixed cost - Variable cost)*(1-tax rate)

Depreciation Tax shield = Depreciation*tax rate

Operating Cashflow = Net Cashflow + Depreciation = 23452.13+12361.22 = $35813.35


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