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Homework Help >> Finance Basics
  Calculating net operating cash flow for the initial year  

Question1)

Assume new instruments for a firm cost $18,000 with an extra installation fee of $2,000, both of which are depreciable. Complete the depreciation schedule shown below using the Modified Accelerated Cost Recovery System (MACRS) 3-year class.

Year    Rate    Basis    Depreciation
1           
2           
3           
4           

Question2)

A company is evaluating a proposed 4-year project.  The depreciable cost would include the following: $300,000 for the equipment, $20,000 for shipping, and $30,000 for installation. The depreciation life is under the MACRS 3-year class, with a salvage value of $45,000. The inventories would rise by $18,000 and accounts payable would rise by $3,000. Additionally, the new sales are estimated to be 150,000 units per year at $2.25 per unit. There is a variable operating cost that is 60% of sales and the company’s marginal tax rate is 35%.  Complete parts (a) through (c) below.

a) Find out the net operating cash flow for the initial year (Year 0).

b) Find out the net operating cash flow for Years 1, 2, and 3.

c) Find out the net terminal year cash flow.

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Course: Finance Basics

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