You are evaluating a project for your company. You estimate the sales price to b

Question

You are evaluating a project for your company. You estimate the sales price to be $260 per unit and sales volume to be 3,600 units in year 1; 4,600 units in year 2; and 3,100 units in year 3. The project has a three-year life. Variable costs amount to $110 per unit and fixed costs are $180,000 per year. The project requires an initial investment of $219,000 in assets which will be depreciated straight-line to zero over the three-year project life. The actual market value of these assets at the end of year 3 is expected to be $36,000. NWC requirements at the beginning of each year will be approximately 11 percent of the projected sales during the coming year. The tax rate is 30 percent and the required return on the project is 11 percent. What is the operating cash flow for the project in year 2?

Explanation / Answer

The operating cash flow for the project in year 2:- = $ 375300

Sales ( 4600 * 260)

(-) Variable costs (110 * 4600)

1196000

506000

Contribution

(-) Fixed costs

690000

180000

Profit before depreciation

(-) Depreciation (219000 - 36000) / 3

510000

61000

Profit before Tax

(-) Tax @ 30 %

449000

134700

Profit after Tax

(+) Depreciation

314300

61000

Sales ( 4600 * 260)

(-) Variable costs (110 * 4600)

1196000

506000

Contribution

(-) Fixed costs

690000

180000

Profit before depreciation

(-) Depreciation (219000 - 36000) / 3

510000

61000

Profit before Tax

(-) Tax @ 30 %

449000

134700

Profit after Tax

(+) Depreciation

314300

61000

Related Questions

Navigate

• Browse (All)
• Browse Y
• Subjects

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.