Question

You are given the following projections for a project:

Units sold per year:	64,219
Price per unit:	$ 4
Variable cost per unit:	$ 1
Fixed costs per year:	$ 12,724
Initial cost of manufacturing equipment:	$ 99,307
Project life (years):	2
Initial net working capital:	$ 14,184
Tax rate:	21%

The cost of manufacturing equipment will be depreciated straight-line to zero over the project’s life.

Note: units sold per year, price per unit, variable cost per unit, fixed cost per year remain the same for each year of the project.

What is the operating cash flow (OCF) for year 2 of the project?

Round your answer to 2 decimal places (e.g. 125.74632 = 125.75).

Answer 1

Tax rate		21%
Calculation of annual depreciation
Depreciation		Year-1	Year-2
Cost		$             99,307	$             99,307
Dep Rate		50.00%	50.00%
Depreciation	Cost * Dep rate	$             49,654	$             49,654
Calculation of annual operating cash flow
		Year-1	Year-2
No of units		64,219	64,219
Selling price		$                       4	$                       4
Operating cost		$                       1	$                       1
Sale		$           256,876	$          256,876
Less: Operating Cost		$             64,219	$             64,219
Contribution		$           192,657	$          192,657
Less: Fixed cost		$             12,724	$             12,724
Less: Depreciation		$             49,654	$             49,654
Profit before tax (PBT)		$           130,280	$          130,280
Tax@21%	PBT*Tax rate	$             27,359	$             27,359
Profit After Tax (PAT)	PBT - Tax	$           102,921	$          102,921
Add Depreciation	PAT + Dep	$             49,654	$             49,654
Cash Profit after-tax		$           152,574	$          152,574
Calculation of operating cashflow
Year		Capital	Working capital	Operating cash	Annual Cash flow
0		$            (99,307)	$           (14,184)		$    (113,491.00)
1				$           152,574	$     152,574.31
2			$             14,184	$           152,574	$     166,758.31