Question

What is the operating cash flow (OCF) for year 4 of the skateboard park project that White Mountain Entertainment should use in its NPV analysis of the project? White Mountain Entertainment operates a(n) ropes course. The firm is evaluating the skateboard park project, which would involve opening a skateboard park. During year 4, the skateboard park project is expected to have relevant revenue of 903,700 dollars, relevant variable costs of 270,800 dollars, and relevant depreciation of 58,500 dollars. In addition, White Mountain Entertainment would have one source of fixed costs associated with the skateboard park project. Yesterday, White Mountain Entertainment signed a deal with Orange Valley Media to develop an advertising campaign for use in the skateboard park project. The terms of the deal require White Mountain Entertainment to pay 44,300 dollars to Orange Valley Orange Valley in 4 years from today. The tax rate is 35 percent.

Answer 1

Answer

Operating cash flow (OCF) for year 4 of the skateboard park project = 403065

Explanation:

Operating cash flow is Net cash inflow from the project after paying all cash expenses and non cash expenses adjusted for tax.

Calculation of Operating cash flow:

Revenue	903700
Less: Variable Cost	270800
Less: Advertising campaign cost	44300
Less: Depreciation	58500
Profit Before tax	530100
Less: Tax @ 35%	185535
Profit after tax	344565
Add: Depreciation (non-cash expense)	58500
Operating cash flow	403065