Question

ZZz company is considering an investment (at time = 0) in a machine that produces headphones. The cost of the machine is 86680 dollars with zero expected salvage value. Annual production in units during the 3-year life of the machine is expected to be (starting at time = 1) 8145, 11532, and 9929. The headphones sale price per unit is 12 dollars in year one and it is expected to increase by 8% per year thereafter. Production costs per unit will be 7 dollars in year one, and then increase by 6% per year. Depreciation on the machine is 10127 dollars per year, and the tax rate is 40%. Calculate the net cash flow at time = 2 (not present value). Assume all flows are at the end of each year. (note: round your answer to the nearest cent, and do not include spaces, currency signs, plus or minus signs, or commas)

Answer 1

Initial cash outflow at t=0 $86680

Operating cash flows are shown in the table:

year	Sales = annual production * Price Per unit	Variable cost= annual production *variable cost per unit	Contribution	Depreciation	Earning before tax	Tax	Earning after tax	Earning after tax and before depreciation
1	8145*12=97740	8145*7=57015	40725	10127	30598	12239.2	18358.8	28482.8
2	11532*12.96=149454.72	11532*7.42=85567.44	63887.28	10127	53760.25	21504.1	32256.15	42383.15
3	9929*13.997=138976.213	9929*7.865=78091.585	60884.628	10127	50757.628	20303.05	30454.578	40581.578

Net cash flow at t=2 =Earning after tax and before depreciation of t=2 =$42383.15