You are evaluating a project for The Tiff-any golf club, guaranteed to correct t
ID: 2698152 • Letter: Y
Question
You are evaluating a project for The Tiff-any golf club, guaranteed to correct that nasty slice. You estimate the sales price of The Tiff-any to be $500 per unit and sales volume to be 1000 units in year 1; 1600 units in year 2; and 1325 units in year 3. The project has a three-year life. Variable costs amount to $225 per unit and fixed costs are $100,000 per year. The project requires an initial investment of $175,000 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 $35,000. NWC requirements at the beginning of each year will be approximately 10 percent of the projected sales during the coming year. The tax rate is 34 percent and the required return on the project is 10 percent. What is the operating cash flow for the project in year 1?
$105,331.35 $125,418.65 $144,231.35 $164,231.35Explanation / Answer
the operating cash flow for the project in year 1
Sales = 500*1000 =500,000
Variable Cost = 225*1000= 225,000
Fixed cost = 100,000
Net profit before depreciation & taxes = 175,000
Depreciation =58,333
Net Profit before tax = 116,667
Tax= 116667*34% = 39,667
Net profit = 77,000
Add: Depreciation=58,333
Operating Cash Flow =$135,333
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