I need help calculating: Operating Cash Flow for years 1 through 5 After-tax cas
ID: 1171627 • Letter: I
Question
I need help calculating:
Operating Cash Flow for years 1 through 5
After-tax cash flow of the project disposal
NPV of the project
NPV Mathews Mining Company is looking at a project that has the following forecasted sales first year sales are 6,800 units and sales will grow at 13% over the next four years a five-year project) The price of the product will start at S123.00 per unit and will increase each year at 6% The production costs are expected to be 60% of the current year's sales price. The manufacturing equipment to aid this project will have a total cost including installation of $1,300,000. It will be depreciated using MACRS,?, and has a seven-year MACRS life classification. Fixed costs will be $55,000 per year. Mathews Mining has a tax rate of 30%. What is the operating cash flow for this project over these five years? Find the NPV of the project for Mathews Mining if the manufacturing equipment can be sold for S70,000 at the end of the five-year project and the cost of capital for this project is 11%.Explanation / Answer
Year
0
1
2
3
4
5
cash outflow or cost of machine
-1300000
Units sold = units sold*(1+growth rate)^n
6800
7684
8682.92
9811.7
11087.22
selling price = selling price*(1+growth rate)^n
123
130.38
138.2028
146.495
155.2847
total sales
836400
1001839.92
1200004
1437365
1721675
less production cost -60% of sales
501840
601103.952
720002.3
862418.8
1033005
less depreciation
185770
318370
227370
162370
116090
less fixed cost
55000
55000
55000
55000
55000
operating profit
93790
27365.968
197631.5
357575.8
517580.1
less tax-30%
28137
8209.7904
59289.46
107272.8
155274
profit after tax
65653
19156.1776
138342.1
250303.1
362306.1
add depreciation
185770
318370
227370
162370
116090
after tax proceeds from sale of machine
136009
net operating cash flow
-1300000
251423
337526.1776
365712.1
412673.1
614405.1
present value of cash flow = cash flow/(1+r)^n r= 11%
-1300000
226507.2
273943.8175
267405.5
271840.5
364619.5
Net present value = sum of present value of cash flow
104316.6
Year
cost of machine
MACRS rate
Annual depreciation
1
1300000
14.29%
185770
2
1300000
24.49%
318370
3
1300000
17.49%
227370
4
1300000
12.49%
162370
5
1300000
8.93%
116090
accumulated depreciation
1009970
book value of machine at the end of year 5
1300000-1009970
290030
gain/loss on sale of machine
70000-290030
-220030
tax on loss of sale of old machine
-220030*30%
-66009
sale proceeds with tax benefit on sale of machine
70000+66009
136009
Year
0
1
2
3
4
5
cash outflow or cost of machine
-1300000
Units sold = units sold*(1+growth rate)^n
6800
7684
8682.92
9811.7
11087.22
selling price = selling price*(1+growth rate)^n
123
130.38
138.2028
146.495
155.2847
total sales
836400
1001839.92
1200004
1437365
1721675
less production cost -60% of sales
501840
601103.952
720002.3
862418.8
1033005
less depreciation
185770
318370
227370
162370
116090
less fixed cost
55000
55000
55000
55000
55000
operating profit
93790
27365.968
197631.5
357575.8
517580.1
less tax-30%
28137
8209.7904
59289.46
107272.8
155274
profit after tax
65653
19156.1776
138342.1
250303.1
362306.1
add depreciation
185770
318370
227370
162370
116090
after tax proceeds from sale of machine
136009
net operating cash flow
-1300000
251423
337526.1776
365712.1
412673.1
614405.1
present value of cash flow = cash flow/(1+r)^n r= 11%
-1300000
226507.2
273943.8175
267405.5
271840.5
364619.5
Net present value = sum of present value of cash flow
104316.6
Year
cost of machine
MACRS rate
Annual depreciation
1
1300000
14.29%
185770
2
1300000
24.49%
318370
3
1300000
17.49%
227370
4
1300000
12.49%
162370
5
1300000
8.93%
116090
accumulated depreciation
1009970
book value of machine at the end of year 5
1300000-1009970
290030
gain/loss on sale of machine
70000-290030
-220030
tax on loss of sale of old machine
-220030*30%
-66009
sale proceeds with tax benefit on sale of machine
70000+66009
136009
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