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: 2/20/2013 2:59:25 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
Carla, Linda, and Terry form a partnership. Carla contributes machinery (that was purchased in 2006 and has an adjusted basis of $45,000 and a fair market value of $70,000) in retu

Q. What is Capital Gain? Capital Gain - Portion of total GAIN recognized on the sale or exchange of a no inventoryasset that isn't taxed as ORDINARY INCOME. Capital gains have

Broadway Scripts is a service-type enterprise in the entertainment field, and its manager, Joe Numbers, has only a limited knowledge of accounting. Joe prepared the following balan

In additional information depreciation of two years is given. What is the treatment of it while preparing fixed assets account.

Q. Design a organisational strategy? The objectives to which organisational approach relates depend on the relative power of different stakeholders associated with the company

Whereas dividend may be of prime significance to some equity shareholders, this may not be so for the other shareholders. Several shareholders may be interested in receiving a usua

Choose a share from a market such as LSE, NYSE, NASDAQ, etc. [Data sources could be Datastream, Google Finance or others]. Prepare a report which involves the following aspects: -

Activity-Based Costing (ABC) An accounting method that assigns identifiable costs and allocates common costs to definite product lines or business fragments Also known as pro

1. What is the internal rate of return for a project that has a net investment of $150,000 and net cash flows of $40,000 for 5 years? 2. Using the profitability index, which of

In May 2011, Your Company purchased the rights to a natural resource for $4,125,000. The estimated recoverable units from the natural resource amount to 5,500,000 units. During the