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You have been hired as a consultant for Wild lCat Manufacturing Inc. {WCM}, manufacturers of ultra smart phone covers. The market for these types of
You have been hired as a consultant for Wild lCat Manufacturing Inc. {WCM}, manufacturers of ultra smart phone covers. The market for these types of advanced covers is growing quickly. Two years ago, the company had hired a marketing rm to analyze the ultra smart phone cover market, at a cost of $300,000. An excerpt of the marketing report is as follows: The industry will continue to grow readily over the next years. With the brand name recognition that WCM brings to bear, we feel that the company will be able to sell 150k, 200k, 225k, and 230k units each year for the next four years, respectively. Again, capitalizing on the name recognition of the WildCat branded ultra smart phone covers, we feel that a premium price of $25 can be charged for each cover. Because the future of ultra smart phone covers may taper rapidly after four years, we feel at the end of the four-year period, sales should be discontinued. WCM believes that xed costs for the proiect will be $600,000 per year, and variable costs are 16% of sales. The equipment necessary for production will cost $4.5 million and will be depreciated according to a three- year MACRS schedule. At the end of the project, the equipment can be scrapped for $700,000. Net working capital of $150,000 will be required immediately and will be recoverable at the end of the project. WCM has a 35 percent tax rate. Calculate the company's operating cash flow
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