# Finance Study Guide

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Finance Study Guide
XYZ is considering a project that will require \$28,000 in net working capital and \$87,000 in fixed assets. The project is expected to produce annual sales of \$75,000 with associated costs of \$57,000. The project has a 5-year life. The company uses straight-line depreciation to a zero book value over the life of the project. The tax rate is 30 percent. What is the operating cash flow for this project?
OCF = net income + depr
(Sales-cost) * (1-T) + depreciation * T
OCF = (Sales – Costs)(1 – tC) + tCDepreciation OCF = 75000-57000)(1 – 0.3) + 0.3(\$115,000/5)
= 18000*.7 = 12600 + 6900
=19500

XYZ is expanding and expects operating cash flows of \$26,000 a year for 4 years as a result. This expansion requires \$39,000 in new fixed assets. These assets will be worthless at the end of the project. In addition, the project requires \$3,000 of net working capital throughout the life of the project. What is the net present value of this expansion project at a required rate of return of 16 percent?

NPV=PV(inflow)-PV(outflow) so. i have 26,000 cuz thats how much they make every year. and i got 42,000 from the initial 39,000 asset that we cant sell and adding 3000 of the first year of NWC

26,000/(1+.16)^1 + 26,000/(1+.16)^2 + 26,000/(1+.16)^3 + 26,000/(1+.16)^4 - 42,000/(1.16)^1 + 3000/(1+.16)^2 + 3000/(1+.16)^3 + 3000/(1+.16)^4
22413.7931 + 19322.23543 + 16655.98975+ 14364.64 = 72756.65568
36206.89655+2229.4887+1921.845+1656.54 = 42014.77
30741.88

Automated Manufacturers uses high-tech equipment to produce specialized aluminum products for its customers. Each one of these machines costs \$1,480,000 to purchase plus an additional \$49,000 a year to operate. The machines have a 6-year life after which they are worthless. What is the equivalent annual cost of one these machines if the required return is 16 percent? -450

You are working on a bid to build two city parks a year for the next three years. This project requires the purchase of \$180,000 of

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