Compute the annual operating cash flow

Reference no: EM13835498

Lee Inc. purchases a digital color printer for $280,000 to launch its 5-year publishing project.

(11%) This printer will be fully depreciated by the straight-line method over its 7-year economic life, and will be sold for$60,000 at the termination of the 5-year project. The variable costs are $26 per copy, and annual fixed costs are $80,000. The unit selling price of the book is $32. The marginal tax rate is 35%, the inflation rate is 3%, and the discount rate is 14%. This project requires an initial net working capital requirement of $50,000 that can be fully recovered at the termination of the project.

(a) Compute the annual operating cash flowfor this 5-year publishing project to break even in valuation, i.e., OCF_BE.

(b) Use your answer for OCF_BE in part (a) to compute the minimum number of copies needed to be sold annually for this 5-year publishing project to break even in valuation

Reference no: EM13835498

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