OCF

A new project you are considering is expected to generate an operating cash flow of $48,210 and will initially free up $21,630 in net working capital. Purchases of fixed assets costing $67,800 will be required to start up the project. What is the total cash flow for this project at time zero?
CF0 = $21,630 - $67,800 = -$46,170 The increase in the OCF kicks in after time zero.

time

A project has an annual operating cash flow of $43,700. Initially, this 4-year project required $3,800 in net working capital, which is recoverable when the project ends. The firm also spent $21,500 on equipment to start the project. This equipment will have a book value of $4,300 at the end of year 4. What is the cash flow for year 4 of the project if the equipment can be sold for $5,400 and the tax rate is 34 percent? CF4 = $43,700 + $3,800 + $5,400 - [($5,400 - $4,300) 0.34] = $52,526

time

Hi Fliers is considering making and selling custom kites in two sizes. The small kites would be priced at $9 and the large kites would be $24. The variable cost per unit is $5 and $11, respectively. Jill, the owner, feels that she can sell 2,600 of the small kites and 1,700 of the large kites each year. The fixed costs would only be $2,100 a year and the tax rate is 34 percent. What is the annual operating cash flow if the annual depreciation expense is $900?

samll kite large kite total

Operating cash flow = [2,600 ($9 - $5) + 1,700 ($24 - $11) - $2,100] [1 -034] + [$900 0.34] = $20

20370

time The Sausage Hut is looking at a new sausage system with an installed cost of $438,000. This cost will be depreciated straight-line to zero over the project's 4year life, at the end of which the sausage system can be scrapped for $69,000. The sausage system will save the firm $129,000 per year in pretax operating costs, and the system requires an initial investment in net working capital of $29,000, which will be recouped at project end. If the tax rate is 35 percent and the discount rate is 9 percent, what is the NPV of this project? 0 1 2 3 4

OCF $48,210

Change in Net working capital -$21,630

time 0 1 2

-$46,170

time 0 1 2 3 4

ocf $43,700 $43,700 $43,700 $43,700

networking capital 3800 0 0 0 -3800

price $9 $24

variable cost $5 $11

sales 2,600 1,700

fixed cost 2,100 0

[1 -034] + [$900 0.34] = $20,370

investment depreciation book $438,000.00 $109,500.00 $109,500.00 $109,500.00 $109,500.00 sum $438,000.00

salvage $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $69,000.00

savings $129,000.00 $129,000.00 $129,000.00 $129,000.00

Investment in fixed assets $67,800

investment -21,500 0 0 0 0

salvage value

book value

tax rate 34%

cash flow time 4

5400

4300

depreciation $900 $0

tax rate 34% 34%

OCF $5,784 $14,586 $20,370

networking capital tax rate $29,000 $0 0 0 ($29,000)

dicount rate 35%

OCF 9% -$467,000.00 $122,175.00 $122,175.00 $122,175.00 $196,025.00

npv -$18,870.02

sh flow time 4

$52,526.00