Question

A company sells Tidbits to consumers at a price of $85 per unit. The cost to produce Tidbits is $36 per unit. The company will sell 15,000 Tidbits to consumers each year. The fixed costs incurred each year will be $150,000. There is an initial investment to produce the goods of $3,100,000 which will be depreciated straight line over the 11 year life of the investment to a salvage value of $0. The opportunity cost of capital is 9% and the tax rate is 33%.

What is operating cash flow each year?

Answer 1

Sales (15000*85) =	$   12,75,000
Variable costs (15000*36)	$     5,40,000
Fixed costs	$     1,50,000
Depreciation (3100000/11)	$     2,81,818
Net operating income	$     3,03,182
Tax at 33%	$     1,00,050
NOPAT	$     2,03,132
Add: Depreciation	$     2,81,818
Operating cash flow each year	$     4,84,950