Reference no: EM131891610
1. What is the operating cash flow (OCF) for year 1 of project A that Middlefield Motors should use in its NPV analysis of the project? The tax rate is 45 percent. During year 1, the project A is expected to have relevant revenue of 74,000 dollars, relevant variable costs of 24,000 dollars, and relevant depreciation of 17,000 dollars. In addition, Middlefield Motors would have one source of fixed costs associated with the project A. Yesterday, Middlefield Motors signed a deal with Creative Advertising to develop a marketing campaign. The terms of the deal require Middlefield Motors to pay Creative Advertising either 22,000 dollars in 1 year if project A is pursued or 34,000 dollars in 1 year if project A is not pursued.
2. What is the expected after-tax cash flow from selling a piece of equipment if Litchfield Design purchases the equipment today for 120,000 dollars, the tax rate is 30 percent, the equipment is sold in 3 years for 20,000 dollars, and MACRS depreciation is used where the depreciation rates in years 1, 2, 3, 4, and 5 are 32 percent, 27 percent, 22 percent, 12 percent, and 7 percent, respectively?
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Require initial investment in equipment
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