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    Finance Homework OCF

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    Shoaib Shahzad
    This document provides instructions and questions for homework assignment #3. It states there are 5 questions worth a total of 17 points and answers must be submitted through Turnitin to avoid plagiarism. The first 3 questions provide data on proposed projects and ask for the year 1 operating cash flow. The fourth question provides additional data for a 3-year project and asks for the net present value. The fifth question again asks for the year 1 operating cash flow based on given sales, cost, depreciation and tax information.

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    Finance Homework OCF

    Uploaded by

    Shoaib Shahzad
    43 views4 pages
    This document provides instructions and questions for homework assignment #3. It states there are 5 questions worth a total of 17 points and answers must be submitted through Turnitin to avoid plagiarism. The first 3 questions provide data on proposed projects and ask for the year 1 operating cash flow. The fourth question provides additional data for a 3-year project and asks for the net present value. The fifth question again asks for the year 1 operating cash flow based on given sales, cost, depreciation and tax information.

    Original Description:

    Solved mid-term questions for the balance sheet, income statement, depreciation, WACC.

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    This document provides instructions and questions for homework assignment #3. It states there are 5 questions worth a total of 17 points and answers must be submitted through Turnitin to avoid plagiarism. The first 3 questions provide data on proposed projects and ask for the year 1 operating cash flow. The fourth question provides additional data for a 3-year project and asks for the net present value. The fifth question again asks for the year 1 operating cash flow based on given sales, cost, depreciation and tax information.

    Copyright:

    © All Rights Reserved
    Download as DOCX, PDF, TXT or read online from Scribd
    Download as docx, pdf, or txt
    43 views4 pages

    Finance Homework OCF

    Uploaded by

    Shoaib Shahzad
    This document provides instructions and questions for homework assignment #3. It states there are 5 questions worth a total of 17 points and answers must be submitted through Turnitin to avoid plagiarism. The first 3 questions provide data on proposed projects and ask for the year 1 operating cash flow. The fourth question provides additional data for a 3-year project and asks for the net present value. The fifth question again asks for the year 1 operating cash flow based on given sales, cost, depreciation and tax information.

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    © All Rights Reserved
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    of 4

    FNCE 623 HOMEWORK #3, DUE WEDNESDAY, JUNE16, 5:00 PM.

    There are 5
    questions; elements of plagiarism or cooperative (copied work) will result in zero mark for
    all papers. Do your work on this paper and submit via TURNITIN, in WORD format and
    not in PDF. (17 points total)

    Q1. Tallgate In. is embarking on a new project whose data are shown below. What is the
    project's Year 1 Operating cash flow (OCF)? (3 points)

    Sales revenues $22,250


    Depreciation $8,000
    Other operating costs $12,000
    Tax rate 30.0%

    Ans 1
    Sales 22,250
    Less: Operating cost (12,000)
    Less: Depreciation (8,000)
    Earnings before interest & tax (EBIT) 2,250
    Less: Taxes (EBIT*30%) (675)
    Net Income 1,575
    Operating Cash Flow (for Year1)

    EBIT + Depreciation - Taxes 9,575

    Q2. Mechanicsville is planning to invest on a new project whose data are shown below. The
    equipment has a 3-year tax life; depreciation method to be used is the straight-line method over
    the 3 years. Revenues and other operating costs are expected to be constant over the project's 3-
    year life. What is the project's Year 1 Operating cash flow? (3 points)

    Equipment cost (depreciable basis) $65,000


    Straight-line depreciation rate 33.333%
    Sales revenues, each year $60,000
    Operating costs (excl. deprec.) $25,000
    Tax rate 30.0%
    Salvage Value $0

    Answer 2

    1
    Sales 60,000
    Less: Operating cost (25,000)
    Less: Depreciation (Equipment cost x 33.333%) (21,666)
    Earnings before interest & tax (EBIT) 13,334
    Less: Taxes (30%) (4,000)
    Net Income 9,333
    Operating Cash Flow (for Year1)

    EBIT + Depreciation - Taxes 31,000

    Q3. You just graduated and you are hired to help your company estimate the Year 1 cash flow
    for a proposed project with the following data. What is the Year 1 Operating cash flow? (3
    points)

    Sales revenues, each year $42,500


    Depreciation $10,000
    Other operating costs $17,000
    Interest expense $4,000
    Tax rate 30.0%

    Ans 3
    Sales 42,500
    Less: Operating cost (17,000)
    Less: Depreciation (10,000)
    Earnings before interest & tax (EBIT) 15,500
    Less: Taxes (30%) (4,650)
    Less: Interest (4,000)
    Net Income 6,850
    Operating Cash Flow (for Year1)

    EBIT + Depreciation - Taxes 20,850

    Q4. Allexis firm is considering some new equipment whose data are shown below. The

    2
    equipment has a 3-year tax life depreciated by the straight-line method over 3 the years; it has a
    positive pre-tax salvage value at the end of Year 3, when the project would be closed down. A
    new working capital would be required, but it would be recovered at the end of the project's life.
    Revenues and other operating costs are expected to be constant over the project's 3-year life. (5
    points) What is the project's NPV?

    WACC (interest rate) 10.0%


    Net investment in fixed assets (depreciable basis) $70,000
    Required new working capital $10,000
    Straight-line deprec. rate 33.333%
    Sales revenues, each year $75,000
    Operating costs (excl. deprec.), each year $30,000
    Expected pretax salvage value $5,000
    Tax rate 30.0%

    Step 1: Calculate the Cash Flows


    Description Year 0 Year 1 Year 2 Year 3
    Net Investment in Fixed Assets (70,000)
    Required new working capital (10,000)
    Sales revenue 75,000 75,000 75,000
    Less: Operating cost (30,000) (30,000) (30,000)
    Less: Depreciation (Fixed Asset * 33.333%) (23,333) (23,333) (23,333)
    Income before Interest & Taxes (EBIT) 21,667 21,667 21,667
    Less: Taxes (6,500) (6,500) (6,500)
    Net Income/Profit 15,167 15,167 15,167
    Add: Depreciation 23,333 23,333 23,333
    Operating Cash Flows 38,500 38,500 38,500
    *After-tax salvage value 3,500
    Net Working Capital 10,000
    Net Cash Flow (80,000) 38,500 38,500 52,000

    *After-tax salvage value = Salvage value - [(Salvage value - Book value) x Tax
    rate]

    Step 2: Calculate the NPV


    Using Excel Formula 23,53
    3

    3
    Using BA2 Plus calculator
    CF0 = -80,000
    C01 = 38,500
    F01 = 2
    C02 = 52,000
    F02 = 1
    ENTER; CPT NPV; I/Y = 10; Press down and CPT 25,886.5
    5

    Q5. Singer Company is considering a new project whose data are shown below. What is the
    project's Year 1 Operating cash flow? (3 points)

    Sales revenues, each year $62,500


    Depreciation $8,000
    Other operating costs $25,000
    Interest expense $8,000
    Tax rate 30.0%

    Sales 62,500
    Less: Operating cost (25,000)
    Less: Depreciation (8,000)
    Earnings before interest & tax (EBIT) 29,500
    Less: Taxes (30%) (8,850)
    Less: Interest (8,000)
    Net Income 12,650
    Operating Cash Flow (for Year1)

    EBIT + Depreciation - Taxes 28,650


       

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