Calculate the operating cash flow, Financial Accounting

Assignment Help:

You are evaluating a project which costs $720,000, has a four-year life, and no salvage value. Depreciation is straight-line and the half year rule does not apply. Sales are projected at 190 units per year; price per unit will be $21,000, variable cost per unit will be $15,000 and fixed costs will be $225,000 per year. Based on your experience, you believe the unit sales, variable cost and the fixed cost projections given here are probably accurate to within ± 10 percent. The required return on the project is 15 percent and the tax rate is 35 percent.

(a) Calculate the operating cash flow (OCF) and net present value (NPV) for the base-case, best-case and worst-case scenarios. 

(b)  Suppose that the probability of the base-case scenario is twice the probability of either the worst-case scenario or the best-case scenario. Should the project be accepted? Why? 

(c) How sensitive is the base-case NPV to changes in fixed costs? Illustrate your answer assuming that fixed costs increase from $225,000 to $230,000. 

(d)  What is the base-case accounting break-even sales level for this project.

(e)  Calculate the degree of operating leverage (DOL) for the base-case scenario. How do you interpret this number?


Related Discussions:- Calculate the operating cash flow

Sales volume reaches the maximum capacity, Sales volume reaches the maximum...

Sales volume reaches the maximum capacity of the new machine in Year 4. The positive NPV point to that the investment in Machine Two is financially acceptable althoug

Adjustment, A company does not need to record the receipt of a bill for uti...

A company does not need to record the receipt of a bill for utilities used during this year if they will not pay for it until next year. True or False

Accounting policies-financial statement, Accounting policies Accounting...

Accounting policies Accounting policies are the specific assumptions, bases, principles and practices that are adopted by firms in preparing financial statements. The standard

What is lifetime learning credit, Q. What is Lifetime Learning Credit? ...

Q. What is Lifetime Learning Credit? Lifetime Learning Credit - This allows a credit for 20 percent of qualified tuition and fees paid by taxpayer with respect to one or more s

Cash cycle, Explain the movements in working capital in terms of a business...

Explain the movements in working capital in terms of a business''s cash cycle. Explain some of the options available and their effect on the cash cycle.

Mathematics of investment and credits, 1) A magazine offers a one-year subs...

1) A magazine offers a one-year subscription at a cost of 15 with renewal the following year 16.50. Also offered is a two-year subscription at a cost of 28. What is the effective a

Prepare statement of income and comprehensive income, The following income ...

The following income statement items appeared on the adjusted trial balance of Schembri Manufacturing Corporation for the year ended December 31, 2013 ($ in 000s): sales revenue, $

Rescission-statement of affairs-receiving order , Rescission of receiving o...

Rescission of receiving order The order may be rescinded by the court if: The court has sanctioned a composition or scheme of arrangement; The debts have been paid in

Determine the internal rate of return for a project, What is the internal r...

What is the internal rate of return for a project that has a net investment of $76,000 and net cash flows of $20,507 per year for 7 years? What is the internal rate of return fo

Assembly of financial statements, Q. Assembly of Financial Statements? ...

Q. Assembly of Financial Statements? Assembly of Financial Statements -Providing of various accounting or data-processingservices by an accountant, output of which is in the fo

Write Your Message!

Captcha
Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd