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Demonstrate operating cash flow calculation

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Reference no: EM132507864

Shivatsi plc is considering a new 3-year expansion project that requires an initial fixed asset investment of £2.1m. The fixed asset would be depreciated straight-line to zero over its three-year tax life after which time it will be worthless. The project is estimated to generate £2,150,000 in annual sales with costs of £1,140,000.

Question a. If the tax rate is 40%, what is the operating cash flow (OCF) for this project? Demonstrate OCF calculation using three different methods discussed during the lecture.

Question b. If the required return is 12%, what is the NPV?

Reference no: EM132507864

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