Knowee
Questions
Features
Study Tools

Suppose you invest $105,000 today that will result in sales of 1000units in year 1 and 1500 units in year 2. Sales price and variable costs are$400 and $225 per unit respectively while fixed costs are $125,000 peryear. If depreciation is calculated straight-lineover three years ($105,000/3) and the tax rate is 34%, what isthe cash flow for the project in year 2?$90,750$102,650$126,450$137,500$149,400

Question

Suppose you invest 105,000todaythatwillresultinsalesof1000unitsinyear1and1500unitsinyear2.Salespriceandvariablecostsare105,000 today that will result in sales of 1000units in year 1 and 1500 units in year 2. Sales price and variable costs are400 and 225perunitrespectivelywhilefixedcostsare225 per unit respectively while fixed costs are 125,000 peryear. If depreciation is calculated straight-lineover three years (105,000/3)andthetaxrateis34105,000/3) and the tax rate is 34%, what isthe cash flow for the project in year 2?90,750102,650102,650126,450137,500137,500149,400

...expand
🧐 Not the exact question you are looking for?Go ask a question

Solution

To calculate the cash flow for the project in year 2, we need to follow these steps:

  1. Calculate the total sales: 1500 units * 400/unit=400/unit = 600,000
  2. Calculate the total variable costs: 1500 units * 225/unit=225/unit = 337,500
  3. Subtract the variable costs from the sales to get the gross profit: 600,000−600,000 - 337,500 = $262,500
  4. Subtract the fixed costs from the gross profit: 262,500−262,500 - 125,000 = $137,500
  5. Calculate the depreciation: 105,000/3=105,000 / 3 = 35,000
  6. Subtract the depreciation from the result in step 4 to get the taxable income: 137,500−137,500 - 35,000 = $102,500
  7. Calculate the tax: 102,500∗34102,500 * 34% = 34,850
  8. Subtract the tax from the taxable income to get the net income: 102,500−102,500 - 34,850 = $67,650
  9. Add back the depreciation to the net income to get the cash flow: 67,650+67,650 + 35,000 = $102,650

So, the cash flow for the project in year 2 is $102,650.

This problem has been solved

Similar Questions

A project is expected to generate annual revenues of $131,300, with variable costs of $79,900, and fixed costs of $20,400. The annual depreciation is $4,700 and the tax rate is 34 percent. What is the annual operating cash flow?

2a) A company is considering investing in a new project that requires an initial investment of $50,000. The project is expected to generate cash inflows of $10,000 per year for the next five years. The salvage value of the project at the end of the fifth year is estimated to be $5,000. The company uses straight-line depreciation for all its capital investments. Calculate the Accounting Rate of Return for this project. 2b) Suppose a company is considering a new project that requires an initial investment of $50,000. The company's cost of capital 8%. What is the NPV of the project?

Using the method of your choice, calculate the Net Present Value of the following cash flows. Assume that the required return on this project is 15%  Project AInitial Cost -$ 150  Year 1 $ 175  Year 2 $ 100

Adept Company is analyzing a proposed project with annual sales of 5,200 units, ± 6 percent; variable costs per unit of $11, ± 3 percent; fixed costs of $17,500 per year, ± 3 percent; and a sales price of $22 per unit, ± 2 percent. The annual depreciation expense is $4,200. What is the annual sales revenue under the optimistic scenario?

You have two mutually exclusive projects. Both projects require initial investment of $20 million. Project 1 generated $4 million per year in perpetuity.Project 2 generated $3 million at the end of the first year and its revenue will grow 3% per year thereafter.The cash flows of both projects start at the end of the first year. <a> IRR<b> NPV, assume the cost of capital is 6%

1/3

Upgrade your grade with Knowee

Get personalized homework help. Review tough concepts in more detail, or go deeper into your topic by exploring other relevant questions.