You are working on a bid to build three playgrounds a year for the next two years. This project requires the purchase of $48,000 of equipment which will be depreciated using straight-line depreciation to a zero book value over the two years. The equipment can be sold at the end of the project for $30,000. You will also need $10,000 in net working capital over the life of the project. The fixed costs will be $15,000 a year and the variable costs will be $65,000 per playground. Your required rate of return is 12 percent for this project and your tax rate is 35 percent.
What is the after tax salvage value?
What will be your OCF if you charge the minimal amount per playground?