Cheese & Cake Factory is looking at a project with the following forecasted sales: first-year sales quantity of 35,000 with an annual growth rate of 5% over the next 5 years. The sales price per unit is $40 and will grow at 3% per year. The production costs are expected to be 50% of the current year's sales price. The manufacturing equipment to aid this project will have a total cost (including installation) of $1,000,000. It will be depreciated using MACRS and has a seven-year MACRS life classification. Fixed costs are $300,000 per year. The change in net operating working capital is $10,000 and will be recovered at the end of year 5. Cheese & Cake Factory has a tax rate of 40%. At the end of year 5, the manufacturing equipment can be sold for $150,000 and the cost of capital for this project is 10%. What are the operating cash flow for years one and two?
Cheese & Cake Factory is looking at a project with the following
sales quantity of 35,000 with an annual growth rate of 5% over the next 5 years. The sales price
per unit is $40 and will grow at 3% per year. The production costs are expected to be 50% of
the current year's sales price. The manufacturing equipment to aid this project will have a total
cost (including installation) of $1,000,000. It will be
seven-year MACRS life classification. Fixed costs are $300,000 per year.
The change in net operating working capital is $10,000 and will be recovered at the end of year
5. Cheese & Cake Factory has a tax rate of 40%. At the end of year 5, the manufacturing
equipment can be sold for $150,000 and the cost of capital for this project is 10%.
What are the operating cash flow for years one and two?
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