FINANCE WK 9 CH 12 Est Cash Flows on Projects, 13 Weighing NPV & Other Capital B
ID: 2795807 • Letter: F
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FINANCE WK 9 CH 12 Est Cash Flows on Projects, 13 Weighing NPV & Other Capital Budgetin hEAQTR-17 KQuestion 5 (of 9) value 3.00 points You are evaluating a project for The Tif-any golf club, guaranteed to correct that nasty slice. You estimate the sales price of The Tiff-any to be $480 per unit and sales volume to be 1,000 units in year 1: 900 units in year 2: and 1,325 units in year 3. The project has a 3-year life. Variable costs amount to $265 per unit and fixed costs are $100,000 per year. The project requires an initial investment of $189,000 in assets, which will be depreciated straight-line to zero over the 3-year project life. The actual market value of these assets at the end of year 3 is expected to be $43 000 NWC requirements at the beginning of each year will be approximately 30 percent of the projected sales during the coming year. The tax rate is 30 percent and the required return on the project is 12 percent What is the operating cash flow for the project in year 27 perating cash flow References eBook & ResourcesExplanation / Answer
Year
1
2
3
sales units
1000
900
1325
selling price per unit
480
480
480
total sales
480000
432000
636000
less variable cost
265000
238500
351125
contribution
215000
193500
284875
less fixed cost
100000
100000
100000
operating income
115000
93500
184875
less depreciation
63000
63000
63000
operating profit after depreciation
52000
30500
121875
less tax 30%
15600
9150
36562.5
profit after tax
36400
21350
85312.5
add depreciation
63000
63000
63000
operating profit after tax before depreciation
99400
84350
148312.5
less investment in additional working capital
129600
190800
less increase in working capital = 84350-(190800-129600)
61200
operating cash flow in year 2
23150
Year
1
2
3
sales units
1000
900
1325
selling price per unit
480
480
480
total sales
480000
432000
636000
less variable cost
265000
238500
351125
contribution
215000
193500
284875
less fixed cost
100000
100000
100000
operating income
115000
93500
184875
less depreciation
63000
63000
63000
operating profit after depreciation
52000
30500
121875
less tax 30%
15600
9150
36562.5
profit after tax
36400
21350
85312.5
add depreciation
63000
63000
63000
operating profit after tax before depreciation
99400
84350
148312.5
less investment in additional working capital
129600
190800
less increase in working capital = 84350-(190800-129600)
61200
operating cash flow in year 2
23150
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