The Can - Do Co. is analyzing a proposed project with anticipated sales of 12,000 units, give or...

Question:

The Can - Do Co. is analyzing a proposed project with anticipated sales of 12,000 units, give or take 4%. The expected variable cost per unit is $7 and the expected fixed cost is $36,000. The cost estimates have a range of plus or minus 6%. The depreciation expense is $29,600. The tax rate is 34%. The sale price is estimated at $14.99 a unit, give or take 1%.

What is the operating cash flow under the best - case scenario?

Operating Cash Flow

The operating cash flow is the after-tax amount that is left after paying all tangible expenses. The after-tax cash flows are used to calculate the net present value (NPV). The net operating profit after tax (NOPAT) is also used.

Answer and Explanation:

Given the following information about Can-Do Co.,

{eq}Sales = 12,000 \ units {/eq}

{eq}Variable \ cost (VC) = $7 {/eq}

{eq}Fixed \ cost (FC) = $36,000 {/eq}

{eq}Depreciation (D) = $29,600 {/eq}

{eq}Tax \ (T) = 0.34 {/eq}

{eq}Sales \ price \ (P) = $14.99 {/eq}

The best-case scenario is in which sale is higher and cost estimates are lower. The operating cash flow (OCF) is calculated in the following:

Revenue 12,000(1.04)*$14.99 = $187,075.20
Variable Cost 12,000(1.04)*$7 = ($87,360)
Fixed Cost $36,000(1-0.06)=($33,840)
Depreciation $29,600(1-0.06)=($27,824)
EBT $41,051.20
Tax (34%) ($13,957.41)
Net Income $27,093.79
+ Depreciation $27,824(1-0.34)= $18,363.84
OCF $45,457.63

Therefore, the OCF in the best-case scenario is $45,457.63.


Learn more about this topic:

Loading...
Operating Cash Flow: Definition & Examples

from Finance 101: Principles of Finance

Chapter 10 / Lesson 4
10K

Related to this Question

Explore our homework questions and answers library