Tinney&Smyth; Inc. is considering the purchase of a new batch polymer-bonding ma

Question

Tinney&Smyth; Inc. is considering the purchase of a new batch polymer-bonding machine for producing Crazy Rubber, a children's toy that is soft, pliable but also bouncy. The machine will increase EBITDA by $215,000 per year for the next two years. Assume that operating cash flows occur at the end of each year. The machine's purchase price is $260,000 and the salvage value at the end of two years is $46,800. The machine is classified as 3-year property. To run the Crazy Rubber production line the company will need to purchase an inventory of polydimethylsiloxane and onc acid for a total cost of $15,000 The MACRS depreciation rates for the first two years are 33 33% and 44 45%, The deprecation expense n Year 1 is $86,658. The tax rate is 35%. What are the operating cash flows for the project in Year 1? Calculate the operating cash flows below: (Round to the nearest dollar.) Operating Cash Flows Revenue Operating Expenses EBITDA Depreciation Expense EBIT Taxes NOPAT Add: Depreciation Operating Cash Flows 0) $L

Explanation / Answer

Revenue

$ 230,000.00

Less: Operating Expenses

$     15,000.00

EBITDA

$ 215,000.00

Less: Depreciation Expenses

$     86,658.00

EBIT

$ 128,342.00

Less: Taxes

$     44,919.70

NOPAT

$     83,422.30

Add: Depreciation

$     86,658.00

Operating Cash Flow

$ 170,080.30

Revenue = Operating Expenses + EBIDTA = $ 15,000 + $ 215,000 = $ 230,000

Revenue

$ 230,000.00

Less: Operating Expenses

$     15,000.00

EBITDA

$ 215,000.00

Less: Depreciation Expenses

$     86,658.00

EBIT

$ 128,342.00

Less: Taxes

$     44,919.70

NOPAT

$     83,422.30

Add: Depreciation

$     86,658.00

Operating Cash Flow

$ 170,080.30

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