1. Assume that a new project will annually generate revenues of $2,000,000 and cash expenses (including both fixed and variable costs) of $800,000, while increasing depreciation by $200,000 per year. In addition, the firms tax rate is 34 percent. Calculate the operating cash flows for the new project.

2. The Heritage Farm Implement Company is considering an investment that is expected to generate revenues of $3 million per year. The project will also involve annual cash expenses (including both fixed and variable costs) of $900,000, while increasing depreciation by $400,000 per year. If the firms tax rate is 34%, what are the projects annual operating cash flows?

3. You are considering expanding your product line that currently consists of skateboards to include gas-powered skateboards, and you feel you can sell 10,000 of these per year for 10 years (after which time this project is expected to shut down, with solar-powered skateboards taking over). The gas skateboards would sell for $100 each with variable costs of $40 for each one produced, and annual fixed costs associated with production would be $160,000. In addition, there would be a $1,000,000 initial expenditure associated with the purchase of new production equipment. It is assumed that this initial expenditure will be depreciated using the simplified straight-line method down to zero over 10 years. The project will also require a one-time initial investment of $50,000 in net working capital associated with inventory, and this working capital investment will be recovered when the project is shut down. Finally, assume that the firms marginal tax rate is 34%.

4. You are considering new elliptical trainers and you feel you can sell 5,000 of these per year for five years (after which time this project is expected to shut down when it is learned that being fit is unhealthy). The elliptical trainers would sell for &1,000 each with variable costs of $500 for each one produced, and annual fixed costs associated with production would be $1,000,000. In addition, there would be a $5,000,000 initial expenditure associated with the purchases of new production equipment. It is assumed that this initial expenditure will be depreciated using the simplified straight-line method down to zero over five years. This project will also require a one-time initial investment of $1,000,000 in net working capital associated with inventory, and it is assumed that this working capital investment will be recovered when the project is shut down. Finally, assume that the firms tax rate is 34%.

5. The Guo Chemical Corporation is considering the purchase of a chemical analysis machine. The purchase of this machine will result in an increase in earning before interest and taxes of $70,000 per year. The machine has a purchase price of $250,000, and it would cost an additional $10,000 after tax to install this machine correctly. In addition, to operate this machine properly, inventory must be increased by $15,000. This machine has an expected life of 10 years, after which time it will have no salvage value. Also, assume simplified straight-line depreciation, that this machine is being depreciated down to zero, a 34% marginal tax rate, and a required rate of return of 15%.

REQUIREMENT: Compute for the projected operating cash flows (see the sample format below).

0 1 2 3 4 5 Purchase -200,000.00 360,000.00 360,000.00 360,000.00 360,000.00 Sales Increase in AR Increase in INV Increase in AP COGS Cash OPEX EBITDA -60,000.00 -36,000.00 18,000.00 360,000.00 60,000.00 36,000.00 -18,000.00 -216,000.00 5,000.00 139,000.00 -41,700.00 -216,000.00 5,000.00 139,000.00 -41,700.00 -216,000.00 5,000.00 139,000.00 -41,700.00 -216,000.00 5,000.00 139,000.00 -41,700.00 -216,000.00 -5,000.00 139,000.00 -41,700.00 Taxes Tax Shield from DA OCF 12,000.00 109,300.00 12,000.00 109,300.00 12,000.00 109,300.00 12,000.00 109,300.00 12,000.00 187,300.00 -278,000.00