In: Finance
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.
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