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Operating Cash flow, Contribution Margin, TVM

1) Michelle electrical is evaluating a project which will increase sales by $50,000 and costs by $30,000. The project will cost $150,000 and be depreciated straight-line to a zero book value over the 10 year life of the project. The applicable tax rate is 34%. What is the operating cash flow for this project?

2) Ralph and Emma's is considering a project with total sales of $17,500 total vairable costs of $9,800 total fixed costs of $3,500, and estimated production of 400 units. The depreciation expense is $2,400 a year. What is the contribution margin per unit?

3) You borrow $5,600 to buy a car. The ters of the loan call for monthly payments for four years at a 5.9% rate of interest. What is the amount of each payment?

4)You need to borrow some money from a friend. The terms are I make $20 a month for next six months. But I am required to make my first payment today. My friend is charging me 1.5% interest per month. How much money am I borrowing?

Solution Preview

Answers are in the attached file.

Note: the abbreviations have the following meanings

Ordinary Annuity
PVIFA= Present Value Interest Factor for an Annuity
Annuity due
PVIFA (Annuity due)= Present Value Interest Factor for an Annuity due

They can be read from tables or calculated using the following equations
PVIFA( n, r%)= =[1-1/(1+r%)^n]/r%
PVIFA- Annuity due( n, r%)= =(1+r%) x[1-1/(1+r%)^n]/r%

1) Michelle electrical is evaluating a project which will increase sales by $50,000 and costs by $30,000. The project will cost $150,000 and be depreciated straight-line to a zero book value over the 10 year life of the project. The applicable tax rate is 34%. What is ...

Solution Summary

Answers 4 questions on Operating Cash flow, Contribution Margin, Time Value of Money (TVM).

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