Question
In: Finance
Apple Company considered new 3-year expansion project, which requires an initial fixed asset investment of $2,400....
Apple Company considered new 3-year expansion project, which requires an initial fixed asset investment of $2,400. Thus, Asset will be depreciated straight-line to zero over its 3-year tax life. The fixed asset will have a salvage value of $400 at the end of the project. The estimated annual sales are $2,500 and the total annual cost (fixed and variable costs) is $1,200. The company estimate that it needs net working capital, which is equal to 20% of annual sales. The tax rate is 30%. 1a. Calculate the annual operating cash flow (OCF).
What is the annual operating cash flow (OCF). 2. What is the after-tax salvage value (ATSV). What is the investment needed for the net working capital (NWC) in Year 0. Show formulas and key steps.
Solutions
Expert Solution
Operating cash flow (OCF) each year = income after tax + depreciation
In year 3, the entire working capital investment is recovered
profit on sale of fixed asset at end of year 3 = sale price - book value -
book value is zero as the fixed asset is fully depreciated.
after-tax salvage value = salvage value - tax on profit on sale of fixed asset
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