# 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.

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. 