Bad Company has a new 4-year project that will have annual sales of 8,400 units. The price per unit is $19.90 and thevariable cost per unit is $7.65. The project will require fixed assets of $94,000, which will be depreciated on a 3-yearMACRS schedule. The annual depreciation percentages are 33.33 percent, 44.45 percent, 14.81 percent, and 7.41percent, respectively. Fixed costs are $34,000 per year and the tax rate is 25 percent. What is the operating cash flow forYear 3?$20,705$80,655$57,550$55,155$60,744

Operating cash flow is the amount which is earned by the investor from the project. It is the net…

Answered: Bad Company has a new 4-year project…

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter14: Capital Structure Management In Practice

Section14.A: Breakeven Analysis

Problem 8P

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The Scampini Supplies Company recently purchased a new delivery truck. The new truck cost $22,500, and it is expected to generate net after-tax operating cash flows, including depreciation, of $6,250 per year. The truck has a 5-year expected life. The expected salvage values after tax adjustments for the truck are given here. The company’s cost of capital is 10%. Should the firm operate the truck until the end of its 5-year physical life? If not, then what is its optimal economic life? Would the introduction of salvage values, in addition to operating cash flows, ever reduce the expected NPV and/or IRR of a project?
Bad Company has a new 4-year project that will have annual sales of 8,400 units. The price per unit is $19.90 and the variable cost per unit is $7.65. The project will require fixed assets of $94,000, which will be depreciated on a 3-year MACRS schedule. The annual depreciation percentages are 33.33 percent, 44 45 percent, 14.81 percent, and 7.41 percent, respectively. Fixed costs are $34,000 per year and the tax rate is 21 percent. What is the operating cash flow for Year 3? Mutiple Choice $56.650 $57354 $53,464 $20359
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