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Project's Operating Cash Flow During Year 1

Delta Software is considering a new project whose data are shown below. The equipment that would be used has a 3-year tax life, after which it will be worthless, and it will be depreciated by the straight line method over 3 years. Revenues and other operating costs are expected to be constant over the project's 3-year life. What is the project's operating cash flow during Year 1?

Equipment cost (depreciable basis) $75,000

Straight line depreciation rate 33.33%

Sales $60,000

Operating costs excl. depr $25,000

Tax rate 35%

$27,000
$28,500
$30,000
$31,500
$33,000

7.
Swannee Resorts is considering a new project whose data are shown below. The equipment that would be used has a 3-year tax life, would be depreciated by the straight line method over the project's 3 year life, and would have zero salvage value. No new working capital would be required. Revenues and other operating costs are expected to be constant over the project's 3-year life. What is the project's NPV? (Hint: Cash flows are constant in Years 1-3.)

WACC 10%

Net investment cost (depreciable basis) $65,000

Straight line deprâ?¢n rate 33.33%

Sales revenues $70,000

Operating costs excl. deprâ?¢n $25,000

Tax rate 35%

$22,156.24
$23,791.14
$24,354.87
$25,189.71
$26,599.05

8.
Big Air Services is now in the final year of a project. The equipment originally cost $20 million, of which 75% has been depreciated. Big Air can sell the used equipment today for $6 million, and its tax rate is 40%. What is the equipments after-tax net salvage value?

$500,000
$600,000
$700,000
$800,000
$900,000

9.
You work for Alpha Inc., and you must estimate the Year 1 operating net cash flow for a proposed project with the following data. What is the Year 1 operating cash flow?

Sales $11,000

Depreciation $4,000

Other operating costs $6,000

Tax rate 35%

$4,650
$4,800
$4,950
$5,100
$5,250

10.
Your company, Beta Corporation, is considering a new project which you must analyze. Based on the following data, what is the project's Year 1 operating cash flow?

Sales $22,000

Depreciation $8,000

Other operating costs $12,000

Tax rate 35%

$9,100
$9,200
$9,300
$9,400
$9,500.

Solution Summary

The solution answers various finance questions which regard a project's operating cash flow during year 1.

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