Question
The Tahoe Snow Company is evaluating the purchase of snow-making machine. The marketing and production managers have provided the following change in revenues and expenses
The Tahoe Snow Company is evaluating the purchase of snow-making machine. The marketing and production managers have provided the following change in revenues and expenses associated with the new machine, and the accountant has calculated the depreciation on the machine for the next 4 years. Assume there are no changes in working capital in each year.
| Year | Sales | Expenses | Depreciation |
| 2021 | $100,000 | $50,000 | $20,000 |
| 2022 | $150,000 | $75,000 | $20,000 |
| 2023 | $125,000 | $75,000 | $20,000 |
| 2024 | $100,000 | $75,000 | $20,000 |
| 2025 | $115,000 | $50,000 | $20,000 |
- What is the operating cash flow for each year if the tax rate is 21%?
- What is the operating cash flow for each year if the tax rate is 26%?
- What is the operating cash flow for each year if the tax rate is 31%?
- Suppose the probability of a 21% tax rate is 10%, the probability of a 26% tax rate is 60%, and the probability of a 31% tax rate is 30%. What is the expected operating cash flow for Tahoe? What is the standard deviation of the operating cash flows?
- Calculate the coefficient of variation of the possible cash flows.
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Personal Finance Essentials Credit And Borrowing
Authors: Julia A Heath
1st Edition
1604139889, 9781604139884
