Question

Aloha Charters, based in Hawaii, runs multi-day fishing charters for wealthy anglers. They have been very successful in their first five years in operation and Brian (the owner) is considering adding a second boat. A new 80' Viking would cost $4,750,000 with another $1,000,000 needed to upgrade the interior to a level that would attract the wealthy clients they desire. Additional working capital of $25,000 is also necessary at the time the boat is purchased. The boat would be depreciated straight-line over 20 years, but would be sold at the end of five years, for an estimated $3,500,000. The new boat would generate estimated additional revenue of $2,000,000 per year and would have associated expenses of $325,000. No additional working capital would be necessary. The firm's tax rate is 30% and the required rate of return is 12%. What is the year 3 operating cash flow? $1,258,750 $2,000,000 $1,082,500 $4,350,000

Answer 1

Year 3 operating cash flow=(2000000-325000-(4750000+1000000)/20)*(1-30%)+(4750000+1000000)/20
=1258750