Calculate the operating cash flow, Financial Accounting

You are evaluating a project which costs $720,000, has a four-year life, and no salvage value. Depreciation is straight-line and the half year rule does not apply. Sales are projected at 190 units per year; price per unit will be $21,000, variable cost per unit will be $15,000 and fixed costs will be $225,000 per year. Based on your experience, you believe the unit sales, variable cost and the fixed cost projections given here are probably accurate to within ± 10 percent. The required return on the project is 15 percent and the tax rate is 35 percent.

(a) Calculate the operating cash flow (OCF) and net present value (NPV) for the base-case, best-case and worst-case scenarios. 

(b)  Suppose that the probability of the base-case scenario is twice the probability of either the worst-case scenario or the best-case scenario. Should the project be accepted? Why? 

(c) How sensitive is the base-case NPV to changes in fixed costs? Illustrate your answer assuming that fixed costs increase from $225,000 to $230,000. 

(d)  What is the base-case accounting break-even sales level for this project.

(e)  Calculate the degree of operating leverage (DOL) for the base-case scenario. How do you interpret this number?

Posted Date: 2/19/2013 2:39:24 AM | Location : United States







Related Discussions:- Calculate the operating cash flow, Assignment Help, Ask Question on Calculate the operating cash flow, Get Answer, Expert's Help, Calculate the operating cash flow Discussions

Write discussion on Calculate the operating cash flow
Your posts are moderated
Related Questions
what is the different between prorfit and margin prorfi

Non-for-Profit Organization/Tax-Exempt Organization - An incorporated organization that exists for charitable or educational purposes, and from that its shareholders or trustees do

DIVIDENDS Dividends must be declared and paid in accordance with the following rules: 1) The first dividend must be declared and paid within four months of the first meeting o

Accounting concepts The word 'Accounting Concept' is used to denote necessary assumptions and ideas which are basic to accounting practice. The variety of accounting concepts i

Unqualified Opinion - AUDIT opinion not qualified for any material scope restrictions nor departures from GENERALLY ACCEPTED ACCOUNTING PRINCIPLES (GAAP). AUDITOR may issue an unqu

Retirement of a partner When one of the partners retires ante the others will continue trading, the n it is important that he gets a share of the goodwill that he helped create i

1. Describe the approach Zetar Plc uses to determine goodwill impairment losses. How does this approach differ from US GAAP? 2. Zetar Plc does not report any research and develo

Much of the supply-side, fiscally conservative economic policies of Margaret Thatcher, Ronald Reagan, and even Mike Harris in Ontario were predicated on the belief that high income


Errors in Financial Statements The following financial statements are available for Sherwood Real Estate Company: Balance Sheet Assets Liabilities Cash . . . . . . . . . . . . . .