• 100% Satisfaction Guarantee
Linda_us, Finance, Accounts & Homework Tutor
Category: Homework
Satisfied Customers: 7291
Experience:  Post Graduate Diploma in Management (MBA)
19873544
Linda_us is online now

# 5) OCF from Several Approaches. A proposed new project has

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?