Question #9

Shivatsi, Inc., is considering a new three-year expansion project that requires an

depreciated straight-line to zero over three-year tax life, after which time it will b
sales, with cost of $1,140,000. If the tax rate is 40 percent, what is the OCF for t

Question #10

In the previous problem, suppose the required return on the project is 12 percen

Project Operating Cash Fow

EBIT
Depreciation
Taxes
Operating Cash Flow
Tax Rate
Initial Investements
Sales
Cost
Gross profit
Depreciation
EBIT
Taxes
Net Income

310,000.0
700,000.0
124,000.00

Year
Sales
Variable costs
Gross Profit

886000
40%
2,100,000.0
2,150,000.0
1,140,000.0
1,010,000.0
700,000.0
310,000.0
124,000.0
186,000.0

Depreciation
EBIT
Taxes
Net income

Operating Cash Flow

Change in NWC
Net Capital Spending
Cash Flow from Assets

project that requires an initial fixed asset investment of $2.1 million. The fixed asset will be
after which time it will be worthless. The project is estimated to generate $2,150,000 in annual
ent, what is the OCF for this project.

the project is 12 percent. What is the projects NPV.

om Assets

Calc Ne
0

1
2,150,000.0
-

2
2,150,000.0
###

3
2,150,000.0
-

1,140,000.0

1,140,000.0

1,140,000.0

1,010,000.0

1,010,000.0

1,010,000.0

700,000.0

700,000.0

700,000.0

310,000.0

310,000.0

310,000.0

124,000.0

124,000.0

124,000.0

186,000.0

186,000.0

186,000.0

886,000.0

886,000.0
###

886,000.0

886,000.0

Cash Flows
886,000.0
2,100,000.0
(2,100,000.0)
886,000.0

28,022.50

Discount Rate =
Year
0
1
2
3

NPV=

Calc Net present value (NPV)

iscount Rate =

12%

Cash Flow
2,100,000
886,000
886,000
886,000

28,022.50

0.12