Question

Summer Tyme, Inc., is considering a new 3-year expansion project that requires an initial fixed asset investment of $663,366. The fixed asset will be depreciated straight-line to 20,491 over its 3-year tax life, after which time it will have a market value of $122,918. The project requires an initial investment in net working capital of $50,115. The project is estimated to generate $161,977 in annual sales, with costs of $102,137. The tax rate is 0.36 and the required return on the project is 0.1. What is the operating cash flow in years 1 through 3? (Make sure you enter the number with the appropriate +/- sign)

Answer 1

Cost of asset =		663,366
Salvage value		20,491
Depreciable cost		642,875
usefull life		3
Annual depreciation		$                   214,291.67
Computation of annual operating cash flow
sales		$                   161,977.00
Cost		$                   102,137.00
Depreciation		$                   214,291.67
Profit before tax		$                 (154,451.67)
Tax @ 36%		$                   (55,602.60)
Net income		$                   (98,849.07)
Operating cash flow		$                   115,442.60
(net income + depreciation
answer =		$                   115,442.60