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A proposed new project has projected sales of $108,000, costs of $51,000, and depreciation
Calculate operating cash flow

Operating Cash Flow = Operating Cash Flow(Every Year) = (Sales-operating Cost-Dep)*(1- Tax rate) + Depreciation =(108000

A piece of newly purchased industrial equipment costs $1,080,000 and is classified as seven
annual depreciation allowances and end-of-the-year book values for this equipment.

Year
1
2
3
4
5
6
7
8

Beginning Book Value

MARCS Depreciation Rate
Depriciation
1080000
14.29%
925668
24.49%
661176
17.49%
472284
12.49%
337392
8.93%
240994
8.92%
144597
8.93%
48199
4.46%

$154,332
$264,492
$188,892
$134,892
$96,398
$96,397
$96,398
$48,199

(It must be noted that from year 5 the MACRS converts to straight line depriciatio
percentage then we will use the table given below)

Year
1
2
3
4
5
6
7
8

Beginning Book Value

MARCS Depreciation Rate
Depriciation
1080000
14.29%
925668
24.49%
661176
17.49%
472284
12.49%
337392
8.93%
240948
8.92%
144612
8.93%
48168
4.46%

$154,332
$264,492
$188,892
$134,892
$96,444
$96,336
$96,444
$48,168

Summer Tyme, Inc., is considering a new three-year expansion project that requires an initi
fixed asset will be depreciated straight-line to zero over its three-year tax life, after which ti
estimated to generate $2,650,000 in annual sales, with costs of $840,000. If the tax rate is

Operating Cash Flow(Every Year) = (Sales-operating Cost-Dep)*(1- Tax rate) + Depreciation = (2650000-840000-1300000)*(1

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Franks is looking at a new sausage system with an installed cost of $560,000. This cost will
project's five-year life, at the end of which the sausage system can be scrapped for $85,000
$165,000 per year in pretax operating costs, and the system requires an initial investment i
rate is 34 percent and the discount rate is 10 percent, what is the NPV of this project?

Operating Cash Flow(Every Year) = Saving*(1-Tax Rate) + Depreciation*Tax Rate=(165000)*(1-.34) + (560000/5)*.34= 14698

Year
0
1
2
3
4
5

Initial Investment
Working Capital
-560000

56100

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Operating Cash Flow

-29000

29000

0
146980
146980
146980
146980
146980

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000, and depreciation of $6,800. The tax rate is 35 percent.

ate) + Depreciation =(108000-51000-6800)*(1-.35) + 6800 = $39,430

is classified as seven-year property under MACRS. Calculate the

is equipment.

Ending Book Value

$925,668
$661,176
$472,284
$337,392
$240,994
$144,597
$48,199
$0

traight line depriciation method. If we calculate depriciation as per the Exact

Ending Book Value

$925,668
$661,176
$472,284
$337,392
$240,948
$144,612
$48,168
$0

that requires an initial fixed asset investment of $3.9 million. The

tax life, after which time it will be worthless. The project is
000. If the tax rate is 35 percent, what is the OCF for this project?

650000-840000-1300000)*(1-.35) + 1300000 = $1,631,500

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60,000. This cost will be depreciated straight-line to zero over the

scrapped for $85,000. The sausage system will save the firm
an initial investment in net working capital of $29,000. If the tax
of this project?

34) + (560000/5)*.34= 146980

Net Cash Flow

PV Factor @
-589000
1
146980
0.9091
146980
0.8264
146980
0.7513
146980
0.6830
232080
0.6209
NPV

Present Value
-$589,000.00
$133,618.18
$121,471.07
$110,428.25
$100,389.32
$144,103.42
$21,010.24

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