**Project Evaluation for ABC Corporation**ABC Corporation has engaged your services to assess a new four-year project. The project involves purchasing a work cell costing $843,200. Additional costs include $51,700 for delivery and installation. The work cell will be depreciated straight-line to zero over a 20-year lifespan.**Additional Details:**- **Training Costs:** $59,100 for new employee training.- **Existing Equipment:** Use of a fully depreciated piece of equipment with a market value of $5,200.- **Net Working Capital:** An investment of $10,800 to maintain adequate resources.**Financial Projections:**- **Annual Sales:** $917,000- **Expenses:** Estimated at 38% of sales.- **Tax Rate:** 40%- **Net Working Capital:** To remain constant.- **End-of-Project Asset Values:** - Work cell anticipated market value: $489,000 - Firm plans to reclaim 85% of the final net working capital position.**Cost of Capital:** 10%**Query:** What is the yearly operating cash flow for the project?This information should assist in evaluating the project's feasibility and financial impact.

Operating Cash flow is the amount which is earned by the investor from the project. It is the net amount which is received after deducting all expenses including tax expenses but non-cash depreciation would be added in Operating Cash calculation.Statement Showing Operating cash flow - Amount in ( $ ) Years01234Annual Sales0917000917000917000917000Less:Expenses ( 38% of sales )0348460348460348460348460Less:Deprecation ( W.no1)044745447454474544745EBIT0523795523795523795523795Less:Tax @ 40% on EBIT0209518209518209518209518EAT0314277314277314277314277AddNon Cash Deprecation 044745447454474544745Operating cash flow0359022359022359022359022Operating cash flow from Year 1 to Year 4 = $ 359022

Answered: ABC Corporation has hired you to…

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

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Hurzdan, Inc., is considering the purchase of a $410,000 computer with an economic life of five years. The computer will be fully depreciated over five years using the straight-line method. The market value of the computer will be $74,000 in five years. The computer will replace five office employees whose combined annual salaries are $119,000. The machine will also immediately lower the firm’s required net working capital by $94,000. This amount of net working capital will need to be replaced once the machine is sold. The corporate tax rate is 24 percent. The appropriate discount rate is 14 percent. Calculate the NPV of this project.
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