A firm expects to have earnings before interest and taxes (EBIT) of $145,000 in each of the next 6 years. It pays annual interest of $15,000. The firm is considering the purchase of an asset that costs $125,000, requires $15,000 in installation cost, and has a recovery period of 6 years. It will be the firms only asset, and the assets depreciation is already reflected in its EBIT estimates.

1. Calculate the firms operating cash flows for each of the 6 years using the equation: OCF = [EBIT x (1 T)] + Depreciation

		NOPAT	Depreciation	Operating Cash Flows
	EBIT	[(1) x (1 - .35)]		[(2) + (3)]
Year	(1)	(2)	(3)	(4)
1
2
3
4
5
6