Question

Revenues generated by a new fad product are forecast as follows:

Year	Revenues
1	$45,670
2	40,000
3	20,000
4	10,000
Thereafter	0

Expenses are expected to be 50% of revenues, and working capital required in each year is expected to be 20% of revenues in the following year. The product requires an immediate investment of $40,000 in plant and equipment that will be depreciated using the straight-line method over 5 years. The firm recently spent $2,000 on a study to estimate the revenues of the new product. The tax rate is 20%. What is the operating cash flow in year 1? Answer to nearest whole dollar amount.

Answer 1

Based on the given data, pls find below steps, workings and answer; $ 2000 spent on study is a sunk cost and should not be considered in the Projections;

Answer: Operating Cash Flow for Year 1 = $ 21002