johny trout is planning a $540,000 expansion to its lake. this cost will be depreciated on...

johny trout is planning a $540,000 expansion to its lake. this cost will be depreciated on a straight line basis over a 10 year period. the lake is expected to generate $489,000 in additional annual sales. every year fixed costs are $129,400, with variable costs of $46% of sales, and a tax rate is 34%. what is the operating cash flow for the third year of this project?

a. 106,906.65

b. $107,235.60

Solutions

Expert Solution

First list down the information provided in question:

Cost of Expansion - $ 540,000

Additional Annual Sales - $ 489,000

Variable Cost - 46% of sales i.e. $ 224,940

Annual Fixed Cost - $ 129,400

Tax rate - 34%

Mode of depreciation - SLM Method

Useful life - 10 years

Let us now solve the question:

Following is the basis (formulae) and calculation of operating cash flows:

Operating cash flows are as follows:

Notes:

As revenues and costs are provided on annual basis and these are equal in all financial years, therefore operating cash flows calculated above will remain same in year 1 to year 10.
Depreciation needs to be added back while calculating operating cash flows in profit after taxes

Conclusion:

Therefore, operating cash flows in year 3 is $ 107,235.60. Hence, the answer is b.

Trust the same will serve your purpose.

Should you need any clarifications, please feel free to comment.

jeff jeffy answered 10 months ago

Next > < Previous

Related Solutions

In a combined study of northern pike, cutthroat trout, rainbow trout, and lake trout, it was...

In a combined study of northern pike, cutthroat trout, rainbow trout, and lake trout, it was found that 36 out of 830 fish died when caught and released using barbless hooks on flies or lures. All hooks were removed from the fish. (a) Let p represent the proportion of all pike and trout that die (i.e., p is the mortality rate) when caught and released using barbless hooks. Find a point estimate for p. (Use 4 decimal places.) (b) Find...

In a combined study of northern pike, cutthroat trout, rainbow trout, and lake trout, it was...

In a combined study of northern pike, cutthroat trout, rainbow trout, and lake trout, it was found that 26 out of 857 fish died when caught and released using barbless hooks on flies or lures. All hooks were removed from the fish. (a) Let p represent the proportion of all pike and trout that die (i.e., p is the mortality rate) when caught and released using barbless hooks. Find a point estimate for p. (Use 4 decimal places.) (b) Find...

A fishing lake camp boasts that about 30% of the guests catch lake trout over 20...

A fishing lake camp boasts that about 30% of the guests catch lake trout over 20 pounds on a 4-day fishing trip. Let n be a random variable that represents the first trip to the camp on which a guest catches a lake trout over 20 pounds. (a) Write out a formula for the probability distribution of the random variable n. P(n) = (b) Find the probability that a guest catches a lake trout weighing at least 20 pounds for...

Your company is planning a $216,000 to invest in new equipment. This cost will be depreciated...

Your company is planning a $216,000 to invest in new equipment. This cost will be depreciated on a straight-line basis over a 4-year period. They can salvage it for $45,000. You need to invest $40,000 in new Net Working Capital, which will be returned at the end of the project. The new equipment is expected to generate $489,000 in additional annual sales. Costs are 46% of sales. The tax rate is 34%. 19)What is the Cash Flow From Assets for the last...

a bait and tackle shop claims that the average trout caught in a nearby lake weighs...

a bait and tackle shop claims that the average trout caught in a nearby lake weighs 21 ounces with a standard deviation of 2.9 ounces. A random sample of 60 trout has a mean weight of 20.8 ounces. does the population differ significantly at the 0.05 level of significance?

Trout farming is a perfectly competitive industry and all trout farms have the same cost curves....

Trout farming is a perfectly competitive industry and all trout farms have the same cost curves. when the market price is $25 a fish, farms maximize profit by producing 200 fish a week. at this output, average total cost is $20 a fish and average variable cost is $15 a fish. minimum average variable cost is $12 a fish. i) If the price falls to $20 a fish, will a trout farm produce 200 fish a week. Explain why or...

A certain lake currently has an average trout population of 10,000. The population naturally oscillates above...

A certain lake currently has an average trout population of 10,000. The population naturally oscillates above and below average by 1,000 every year. This year, the lake was opened to fishermen. If fishermen catch 2,000 fish every year, how long will it take for the lake to have no more trout? (Assume that the trout population at the beginning of the year is increasing. Round your answer to two decimal places.)

DeSoto Tools Inc. is planning to expand production. The expansion will cost $3,800,000, which can be...

DeSoto Tools Inc. is planning to expand production. The expansion will cost $3,800,000, which can be financed either by bonds at an interest rate of 5 percent or by selling 76,000 shares of common stock at $50 per share. The current income statement before expansion is as follows: DESOTO TOOLS INC. Income Statement 20X1 Sales $ 3,180,000 Variable costs 1,272,000 Fixed costs 818,000 Earnings before interest and taxes $ 1,090,000 Interest expense 580,000 Earnings before taxes $ 510,000 Taxes @...

DeSoto Tools Inc. is planning to expand production. The expansion will cost $2,900,000, which can be...

DeSoto Tools Inc. is planning to expand production. The expansion will cost $2,900,000, which can be financed either by bonds at an interest rate of 6 percent or by selling 58,000 shares of common stock at $50 per share. The current income statement before expansion is as follows: DESOTO TOOLS INC. Income Statement 20X1 Sales $ 3,090,000 Variable costs 927,000 Fixed costs 809,000 Earnings before interest and taxes $ 1,354,000 Interest expense 490,000 Earnings before taxes $ 864,000 Taxes @...

DeSoto Tools Inc. is planning to expand production. The expansion will cost $3,000,000, which can be...

DeSoto Tools Inc. is planning to expand production. The expansion will cost $3,000,000, which can be financed either by bonds at an interest rate of 8 percent or by selling 60,000 shares of common stock at $50 per share. The current income statement before expansion is as follows: DESOTO TOOLS INC. Income Statement 20X1 Sales $ 3,100,000 Variable costs 620,000 Fixed costs 810,000 Earnings before interest and taxes $ 1,670,000 Interest expense 500,000 Earnings before taxes $ 1,170,000 Taxes @...

Subjects