Question

Insight Enterprise is analyzing a proposed 3-year project using standard sensitivity analysis. The company expects to sell 17,000 units, ±4 percent. The expected variable cost per unit is $12 and the expected fixed costs are $60,000. The fixed and variable cost estimates are considered accurate within a ±5 percent range. The sales price is estimated at $17 a unit, ±5 percent. The project requires an initial investment of $162,000 for equipment that will be depreciated using the straight-line method to zero over the project's life. The equipment can be sold for $49,000 at the end of the project. The project requires $17,500 in net working capital for the three years. The discount rate is 12 percent and tax rate is 25 percent. What is the operating cash flow under the optimistic case scenario?

Answer 1

Sales	$              315,588	=17000*(1+4%)*17*(1+5%)
Less:
Costs	$              258,552	=17000*(1+4%)*12*(1-5%)+60000*(1-5%)
Depreciation	$                54,000	=162000/3
EBT	$                  3,036
Less: Tax payable @ 25%	$                      759
Net income	$                  2,277
Add: Depreciation	$                54,000
Operating cash flow	$   56,277