Reference no: EM132602223
Demiralp, Inc., is planning to set up a new manufacturing plant in New York to produce auto tracking camera. The company bought some land three years ago for $1.7 million in anticipation of using it as a warehouse and distribution site, but the company has since decided to rent these facilities from a competitor instead. If the land were sold today, the company would sell for $2.4 million on an aftertax basis. In four years, the land could be sold for $2.9 million after taxes. The company hired a marketing firm to analyze the market at a cost of $120,000. Here is the summary of marketing report: We believe that the company will be able to sell 8200, 9700, 6000, and 5500 units each year for the next four years, respectively. We believe that $350 can be charged for each unit. We believe at the end of the four-year period, sales should be discountinued. The company believes that fixed costs for the project will be $450,000 per year. Variable costs are $287,000, $339,500, $210,000, and $192,500 each year for the next four years respectively. The equipment necessary for production will cost $3.5 million and will be depreciated according to a three-year MACRS schedule. At the end of the project, the equipment can be scrapped or $500,000. Net working capital of $350,000 will be required immediately. The company has a 21 percent tax rate, and the required return on the project is 6 percent.
What is the Operation Cash Flow (OCF) of Year 2?
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: Demiralp, Inc., is planning to set up a new manufacturing plant in New York to produce auto tracking camera. The company bought some
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