Sheet1

Page 1

Operating Cash Flow = Operating Cash Flow(Every Year) = (Sales-operating Cost-Dep)*(1- Tax rate) + Depreciation =(108000-51000-6800)*(1-.35) + 6800 = $39,430

Year Beginning Book Value MARCS Depreciation Rate Depriciation1 1080000 14.29% $154,3322 925668 24.49% $264,4923 661176 17.49% $188,8924 472284 12.49% $134,8925 337392 8.93% $96,3986 240994 8.92% $96,3977 144597 8.93% $96,3988 48199 4.46% $48,199

Year Beginning Book Value MARCS Depreciation Rate Depriciation1 1080000 14.29% $154,3322 925668 24.49% $264,4923 661176 17.49% $188,8924 472284 12.49% $134,8925 337392 8.93% $96,4446 240948 8.92% $96,3367 144612 8.93% $96,4448 48168 4.46% $48,168

Operating Cash Flow(Every Year) = (Sales-operating Cost-Dep)*(1- Tax rate) + Depreciation = (2650000-840000-1300000)*(1-.35) + 1300000 = $1,631,500

A proposed new project has projected sales of $108,000, costs of $51,000, and depreciation of $6,800. The tax rate is 35 percent. Calculate operating cash flow

A piece of newly purchased industrial equipment costs $1,080,000 and is classified as seven-year property under MACRS. Calculate the annual depreciation allowances and end-of-the-year book values for this equipment.

(It must be noted that from year 5 the MACRS converts to straight line depriciation method. If we calculate depriciation as per the Exact percentage then we will use the table given below)

Summer Tyme, Inc., is considering a new three-year expansion project that requires an initial fixed asset investment of $3.9 million. The fixed asset will be depreciated straight-line to zero over its three-year tax life, after which time it will be worthless. The project is estimated to generate $2,650,000 in annual sales, with costs of $840,000. If the tax rate is 35 percent, what is the OCF for this project?

Sheet1

Page 2

Operating Cash Flow(Every Year) = Saving*(1-Tax Rate) + Depreciation*Tax Rate=(165000)*(1-.34) + (560000/5)*.34= 146980

Year Initial Investment Working Capital Operating Cash Flow0 -560000 -29000 01 1469802 1469803 1469804 1469805 56100 29000 146980

Franks is looking at a new sausage system with an installed cost of $560,000. This cost will be depreciated straight-line to zero over the project's five-year life, at the end of which the sausage system can be scrapped for $85,000. The sausage system will save the firm $165,000 per year in pretax operating costs, and the system requires an initial investment in net working capital of $29,000. If the tax rate is 34 percent and the discount rate is 10 percent, what is the NPV of this project?

Sheet1

Page 3

Operating Cash Flow = Operating Cash Flow(Every Year) = (Sales-operating Cost-Dep)*(1- Tax rate) + Depreciation =(108000-51000-6800)*(1-.35) + 6800 = $39,430

Ending Book Value$925,668$661,176$472,284$337,392$240,994$144,597

$48,199$0

Ending Book Value$925,668$661,176$472,284$337,392$240,948$144,612

$48,168$0

Operating Cash Flow(Every Year) = (Sales-operating Cost-Dep)*(1- Tax rate) + Depreciation = (2650000-840000-1300000)*(1-.35) + 1300000 = $1,631,500

A proposed new project has projected sales of $108,000, costs of $51,000, and depreciation of $6,800. The tax rate is 35 percent.

A piece of newly purchased industrial equipment costs $1,080,000 and is classified as seven-year property under MACRS. Calculate the annual depreciation allowances and end-of-the-year book values for this equipment.

(It must be noted that from year 5 the MACRS converts to straight line depriciation method. If we calculate depriciation as per the Exact

Summer Tyme, Inc., is considering a new three-year expansion project that requires an initial fixed asset investment of $3.9 million. The fixed asset will be depreciated straight-line to zero over its three-year tax life, after which time it will be worthless. The project is estimated to generate $2,650,000 in annual sales, with costs of $840,000. If the tax rate is 35 percent, what is the OCF for this project?

Sheet1

Page 4

Operating Cash Flow(Every Year) = Saving*(1-Tax Rate) + Depreciation*Tax Rate=(165000)*(1-.34) + (560000/5)*.34= 146980

Net Cash Flow PV Factor @ Present Value-589000 1 -$589,000.00146980 0.9091 $133,618.18146980 0.8264 $121,471.07146980 0.7513 $110,428.25146980 0.6830 $100,389.32232080 0.6209 $144,103.42

NPV $21,010.24

Franks is looking at a new sausage system with an installed cost of $560,000. This cost will be depreciated straight-line to zero over the project's five-year life, at the end of which the sausage system can be scrapped for $85,000. The sausage system will save the firm $165,000 per year in pretax operating costs, and the system requires an initial investment in net working capital of $29,000. If the tax rate is 34 percent and the discount rate is 10 percent, what is the NPV of this project?