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    Operating cash flow andInitial Investment Outlay

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    1. Johnson Industries is considering an expansion project. The necessary equipment could be purchased for 9 million, and the project would also require an initial 3 million investment in net operating working capital. The company's tax rate is 40 percent. What is the projects initial investment outlays?

    2. Nixon Communications is trying to estimate the first-year operating cash flow (at t =1) for a proposed project. The financial staff has collected the following information:

    Projected Sales 10 million
    Operating cost (not including depreciation) 7 million
    Depreciation 2 million
    Interest expense 2 million

    The company faces a 40 percent tax rate. What is the project's operating cash flow for the first year (t = 1)?

    3. Carter Air Lines is now in the terminal year of a project. The equipment originally cost 20 million, of which 80 percent has been depreciated. Carter can sell the used equipment today for another airline for 5 million, and its tax rate is 40 percent. What is the equipment after-tax net salvage value?

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    Solution Summary

    Solution contains calculations of Operating cash flow and Initial Investment Outlay

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