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# Operating Cost

I need help filling in the blanks and what formulas are used to arrive at those conclusions.

Year
0 1 2 3 4
Investment outlay
Equipment cost (\$200,000)
Installation (40,000)
Increase in inventory (25,000)
Increase in A/P 5,000
Initial net investment (260,000)

Operating cash flows
Units sales 100,000 100,000 100,000 100,000
Price per unit \$2.00 \$2.00 \$2.00 \$2.00
Total revenues \$200,000 \$200,000 \$200,000 \$200,000

Operating costs (w/o deprn) \$120,000 \$120,000 \$120,000 \$120,000
Depreciation 36,000 16,800
Total costs \$199,200 \$228,000

Operating income \$44,000
Taxes on operating income 320 25,280
A-T operating income \$26,400
Depreciation 79,200 36,000
Operating cash flow \$79,680 \$54,720

Terminal year cash flows
Recovery of net working capital
Salvage value
Tax on salvage value
Total termination cash flow

Net cash flows
Net cash flows (\$260,000) \$89,720

What would have happened if the machinery were sold for less than its book value?

#### Solution Summary

Calculates Operating Cost.

\$2.19