Question

The Bruin's Den Outdoor Gear is considering a new 6-year project to produce a new tent line. The equipment necessary would cost $1.15 million and be depreciated using straight-line depreciation to a book value of zero. At the end of the project, the equipment can be sold for 10 percent of its initial cost. The company believes that it can sell 20,000 tents per year at a price of $57 and variable costs of $18 per tent. The fixed costs will be $325,000 per year. The project will require an initial investment in net working capital of $165,000 that will be recovered at the end of the project. The required rate of return is 9.9 percent and the tax rate is 35 percent. What is the NPV?

A project will reduce costs by $41,200 but increase depreciation by $20,100. What is the operating cash flow if the tax rate is 35 percent?

The Bruin's Den Outdoor Gear is considering making and selling custom kites in two sizes. The small kites would be priced at $11.50 and the large kites would be $24.50. The variable cost per unit is $5.55 and $12.10, respectively. Jill, the owner, feels that she can sell 3,100 of the small kites and 1,850 of the large kites each year. The fixed costs would be $2,120 a year and the depreciation expense is $1,400. The tax rate is 35 percent. What is the annual operating cash flow?

Answer 1