Question

A business is considering a new 3-year expansion project that requires an initial fixed asset investment of $730,019. The fixed asset will be depreciated straight-line to 64,171 over its 3-year tax life, after which time it will have a market value of $92,583. The project requires an initial investment in net working capital of $75,117. The project is estimated to generate $202,956 in annual sales, with costs of $127,920. The tax rate is 0.22 and the required return on the project is 0.15. What is the operating cash flow in years 1 through 3? (+/- sign)

Answer 1

	Computation of operating cash flow
	Annual depreciation =	221,949.33
	(730,019-64,171)/3
i	Annual sales =		202,956.00
ii	Cost =			127,920.00
iii	Depreciation		221,949.33
iv=i-ii-iii	Profit before tax		(146,913.33)
v=	Tax @ 22%		(32,320.93)
vii=iv-v	Profit after tax		(114,592.40)
viii=vii+iii	Operating cash flow =	107,356.93
	answer =			107,356.93