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