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# Operating Cash Flow

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Assume that a new project will annually generate revenues of \$2,000,000. Cash expenses including both fixed and variable costs will be \$800,000, and depreciation will increase by \$200,000 per year. In addition, let's assume that the firm's marginal tax rate is 34 percent. Calculate the operating cash flows.

#### Solution Summary

The solution calculates operating cash flow in a given scenario in the excel sheet.

\$2.19

## Incremental operating cash flow statements

Mini Case a-c Page 580

a. Set up, without numbers, a time line for the project's cash flows.

b. 1) Construct incremental operating cash flow statements for the project's 4 years of operations.

2) Does your cash flow statement include any financial flows such as interest expense or dividends? Why or why not?

c. 1) Suppose the firm had spent \$ 100,000 last year to rehabilitate the production line site. Should this cost be included in the analysis? Explain.

2) Now assume that the plant space could be leased out to another firm at \$25,000 a year. Should this be included in the analysis? If so, how?

3) Finally, assume that the new product line is expected to decrease sales of the firm's other lines by \$50,000 per year. Should this be considered in the analysis? If so, how?