1. I got the answer for this one just not sure if it is right. A 9 year project
ID: 2698937 • Letter: 1
Question
1. I got the answer for this one just not sure if it is right.
A 9 year project is expexted to generate annual revenues of 114,500, variable costs of 73600 and fixed costs of 14000. The annual depreciation is 3500 and the tax rate is 34%. What is the annual operating cash flow ?
2. This one I am not too sure about I would only grant all points if it is explained in detail.
A project has an annual operating cash flow of 43700. Initially, this 4 year project required 3800 in net working capital, which is recoverable when the project ends. The firm also spent 21500 on equipment to start the project. This equipment will have a book value of 4300 at the end of year 4. What is the cashflow for year 4 of the project if the equipment can be sold for 5400 and the tax rate is 34%
Explanation / Answer
1)EBIT = (Revenue - Variable Cost - Fixed Cost) - Dep = (114500 - 73600 - 14000)- 3500 = 23400
PAT = EBIT * (1 - T) = 23400 * (1 - 34%) = 15444
Annual OCF = PAT + Dep = 15444 + 3500 = 18944
2)
CF= 43,700 + 3,800 + 5,400 - [(5,400 - 4,300)*0.34] =52,526
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