5) OCF from Several Approaches. A proposed new project has projected sales of $108,000, costs of $51,000, and depreciation of $6,800. The tax rate is 35 percent. Calculate operating cash flow.
Calculating Depreciation. A piece of newly purchased industrial equipment costs $1,080,000 and is classified as seven-year property under MACRS. Calculate the annual depreciation allowances and end-of-the-year book values for this equipment.
Calculating Project OCF. Summer Tyme, Inc., is considering a new three-year expansion project that requires an initial fixed asset investment of $3.9 million. The fixed asset will be depreciated straight-line to zero over its three-year tax life, after which time it will be worthless. The project is estimated to generate $2,650,000 in annual sales, with costs of $840,000. If the tax rate is 35 percent, what is the OCF for this project?
Dog Up! Franks is looking at a new sausage system with an installed cost of $560,000. This cost will b
depreciated straight-line to zero over the project's five-year life, at the end of which the sausage system can be scrapped for $85,000. The sausage system will save the firm $165,000 per year in pretax operating costs, and the system requires an initial investment in net working capital of $29,000. If the tax rate is 34 percent and the discount rate is 10 percent, what is the NPV of this project?