Question
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Summer Tyme, Inc., is considering a new 3-year expansion project that requires an initial fixed asset...
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)
Solutions
Expert Solution
| 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 |
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