Question

A 9-year project is expected to provide annual sales of $241,000 with costs of $100,000. The equipment necessary for the project will cost $385,000 and will be depreciated on a straight-line method over the life of the project. You feel that both sales and costs are accurate to +/-10 percent. The tax rate is 35 percent. What is the annual operating cash flow for the worst-case scenario? Multiple Choice Ο S69,485 Ο $76,257 Ο $128,787 Ο S52,387 Ο S84,457

Answer 1

Answer is $84,457

Worst Case Scenario where revenue is down by 10% and cost is up by 10%

Normal Situation	Y0	Y1	Y2	Y3	Y4	Y5	Y6	Y7	Y8	Y9
Revenue		$ 2,41,000	$ 2,41,000	$ 2,41,000	$ 2,41,000	$ 2,41,000	$ 2,41,000	$ 2,41,000	$ 2,41,000	$ 2,41,000
Cost		$ 1,00,000	$ 1,00,000	$ 1,00,000	$ 1,00,000	$ 1,00,000	$ 1,00,000	$ 1,00,000	$ 1,00,000	$ 1,00,000
Scenario with - 10%
Revenue Down 10%		$ 2,16,900	$ 2,16,900	$ 2,16,900	$ 2,16,900	$ 2,16,900	$ 2,16,900	$ 2,16,900	$ 2,16,900	$ 2,16,900
Cost Up 10%		$ 1,10,000	$ 1,10,000	$ 1,10,000	$ 1,10,000	$ 1,10,000	$ 1,10,000	$ 1,10,000	$ 1,10,000	$ 1,10,000
Depreciation		$     42,778	$     42,778	$     42,778	$     42,778	$     42,778	$     42,778	$     42,778	$     42,778	$     42,778
Brofit Before Tax		$     64,122	$     64,122	$     64,122	$     64,122	$     64,122	$     64,122	$     64,122	$     64,122	$     64,122
Tax @ 35%		$     22,443	$     22,443	$     22,443	$     22,443	$     22,443	$     22,443	$     22,443	$     22,443	$     22,443
PAT		$       7,855	$       7,855	$       7,855	$       7,855	$       7,855	$       7,855	$       7,855	$       7,855	$       7,855
Operating Cash Flow		$     84,457	$     84,457	$     84,457	$     84,457	$     84,457	$     84,457	$     84,457	$     84,457	$     84,457