Question

Operating cash flow​ (growing each​ year; MACRS). Miglietti Restaurants is looking at a project with the following forecasted​ sales: ​ first-year sales quantity of 31,000​ with an annual growth rate of 4.00​% over the next ten years. The sales price per unit will start at $42 and will grow at 2.50​% per year. The production costs are expected to be 55​% of the current​ year's sales price. The manufacturing equipment to aid this project will have a total cost​ (including installation) of $2,400,000. It will be depreciated using​ MACRS, and has a​ seven-year MACRS life classification. Fixed costs will be $320,000 per year. Miglietti Restaurants has a tax rate of 30​%.

What is the operating cash flow for this project over these ten​ years? Please show all 10

Answer 1

	0	1	2	3	4	4	5	6	7	8	9	10
Unit		31,000	32,240	33,530	34,871	36,266	37,716	39,225	40,794	42,426	44,123	45,888
Price		$42	$43.05	$44.13	$45.23	$46.36	$47.52	$48.71	$49.92	$51.17	$52.45	$53.76
MACRS%		14.29%	24.49%	17.49%	12.49%	8.93%	8.92%	8.93%	4.46%
Investment	($2,400,000)
Sales		$1,302,000	$1,387,932	$1,479,536	$1,577,185	$1,681,279	$1,792,243	$1,910,532	$2,036,627	$2,171,044	$2,314,333	$2,467,079
VC		($716,100)	($763,363)	($813,745)	($867,452)	($924,703)	($985,734)	($1,050,792)	($1,120,145)	($1,194,074)	($1,272,883)	($1,356,893)
FC		($320,000)	($320,000)	($320,000)	($320,000)	($320,000)	($320,000)	($320,000)	($320,000)	($320,000)	($320,000)	($320,000)
Depreciation		($342,960)	($587,760)	($419,760)	($299,760)	($214,320)	($214,080)	($214,320)	($107,040)	$0	$0	$0
EBT		($77,060)	($283,191)	($73,969)	$89,973	$222,256	$272,430	$325,419	$489,442	$656,970	$721,450	$790,185
Tax (30%)		$23,118	$84,957	$22,191	($26,992)	($66,677)	($81,729)	($97,626)	($146,833)	($197,091)	($216,435)	($237,056)
Net Income		($53,942)	($198,233)	($51,778)	$62,981	$155,579	$190,701	$227,793	$342,609	$459,879	$505,015	$553,130
OCF	($2,400,000)	$289,018	$389,527	$367,982	$362,741	$369,899	$404,781	$442,113	$449,649	$459,879	$505,015	$553,130

Depreciation = Investment x MACRS%

OCF = Net Income + Depreciation