Question
What is the operating cash flow for year 4 of project A that White Mountain Industrial should use in its NPV analysis of the project?
What is the operating cash flow for year 4 of project A that White Mountain Industrial should use in its NPV analysis of the project? The tax rate is 10 percent. During year 4, project A is expected to have relevant revenue of 75,000 dollars, relevant variable costs of 26,000 dollars, and relevant depreciation of 12,000 dollars. In addition, White Mountain Industrial would have one source of fixed costs associated with the project A. Yesterday, White Mountain Industrial signed a deal with Priya Advertising to develop a marketing campaign. The terms of the deal require White Mountain Industrial to pay Priya Advertising either 25,000 dollars in 4 years if project A is pursued or 23,000 dollars in 4 years if project A is not pursued. Finally, the equipment purchased for the project would be sold in 4 years for an expected after-tax cash flow of 14,000 dollars.
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