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Capbud 2
Capbud 2
A new project you are considering is expected to generate an operating cash flow of $48,210 and will initially free up $21,630 in net working capital. Purchases of fixed assets costing $67,800 will be required to start up the project. What is the total cash flow for this project at time zero?
CF0 = $21,630 - $67,800 = -$46,170 The increase in the OCF kicks in after time zero.
time
A project has an annual operating cash flow of $43,700. Initially, this 4-year project required $3,800 in net working capital, which is recoverable when the project ends. The firm also spent $21,500 on equipment to start the project. This equipment will have a book value of $4,300 at the end of year 4. What is the cash flow for year 4 of the project if the equipment can be sold for $5,400 and the tax rate is 34 percent? CF4 = $43,700 + $3,800 + $5,400 - [($5,400 - $4,300) 0.34] = $52,526
time
Hi Fliers is considering making and selling custom kites in two sizes. The small kites would be priced at $9 and the large kites would be $24. The variable cost per unit is $5 and $11, respectively. Jill, the owner, feels that she can sell 2,600 of the small kites and 1,700 of the large kites each year. The fixed costs would only be $2,100 a year and the tax rate is 34 percent. What is the annual operating cash flow if the annual depreciation expense is $900?
Operating cash flow = [2,600 ($9 - $5) + 1,700 ($24 - $11) - $2,100] [1 -034] + [$900 0.34] = $20
20370
time The Sausage Hut is looking at a new sausage system with an installed cost of $438,000. This cost will be depreciated straight-line to zero over the project's 4year life, at the end of which the sausage system can be scrapped for $69,000. The sausage system will save the firm $129,000 per year in pretax operating costs, and the system requires an initial investment in net working capital of $29,000, which will be recouped at project end. If the tax rate is 35 percent and the discount rate is 9 percent, what is the NPV of this project? 0 1 2 3 4
OCF $48,210
time 0 1 2
-$46,170
time 0 1 2 3 4
price $9 $24
investment depreciation book $438,000.00 $109,500.00 $109,500.00 $109,500.00 $109,500.00 sum $438,000.00
investment -21,500 0 0 0 0
salvage value
book value
5400
4300
depreciation $900 $0
npv -$18,870.02
sh flow time 4
$52,526.00