Question

XYZ Corp. is considering a new project. The project will require $324517 for new fixed assets, $145183 for additional inventory and $44552 for additional accounts receivable. Short-term debt is expected to increase by $96963 and long-term debt is expected to increase by $302719. The project has a 5-year life. The fixed assets will be depreciated straight-line to a zero book value over the life of the project. At the end of the project, the fixed assets can be sold for 25% of their original cost. The net working capital returns to its original level at the end of the project. The project is expected to generate annual sales of $561147 and costs of $403549. The tax rate is 35% and the required rate of return is 15%. What is the amount of the operating cash flow for the first year of this project? (Round answer to 0 decimal places, do not round intermediate calculations)

Answer #1

Sales | $ 5,61,147 | |

Less: | ||

Costs | $ 4,03,549 | |

Depreciation | $ 64,903 | 324517/5 |

EBT | $ 92,695 | |

Less: Tax payable @ 35% | $ 32,443 | |

Incremental earnings | $ 60,251 | |

Add: Depreciation | $ 64,903 | |

Operating cash flow |
$ 1,25,155 |

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