The Heritage Farm Implement Company is considering an investment that is expecte

Question

The Heritage Farm Implement Company is considering an investment that is expected to generate revenues of ?$3,200,000 per year. The project will also involve annual cash expenses? (including both fixed and variable? costs) of ?$1,100,000?,while increasing depreciation by ?$350,000 per year. If the? firm's tax rate is 35 percent, what is the? project's estimated net operating profit after? taxes? What is the? project's annual operating cash? flow?

At a tax rate of 35?%,the? project's estimated net operating profit after taxes? (NOPAT) is___ .?(Round to the nearest? dollar.)

The? project's annual operating cash flow is ?____.(Round to the nearest? dollar.)

Explanation / Answer

a) NOPAT = Operating Profit * (1 - tax Rate)

Operating profit = Revenue - Expenses - Depreciation = $3,200,000 - $1,100,000 - $350,000 = $1,750,000

NOPAT = 1,750,000 * (1 - 35%) = $1,137,500

b) Annual Operating Cashflow = NOPAT + Depreciation

Annual OCF = $1,137,500 + $350,000 = $1,487,500

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