Homework SourseThe Nisit Corporation is considering a project with a fiveye
The Nisit Corporation is considering a project with a five-year life. The project requires $70,000 of fixed assets (initial installed cash outlay) that are classified as five-year property for MACRS. Variable costs equal 65 percent of sales, fixed costs are $14,000, and the tax rate is 36 percent. What is the operating cash flow for Year 4 given the following sales estimates and MACRS depreciation allowance percentages?
Also, please show how to entering numbers in financial calculator HP bII+
| Year | 1 | 2 | 3 | 4 | 5 |
| Sales | $24,000 | $26,000 | $28,000 | $30,000 | $32,000 |
| MACRS rate | 20.00 | 32.00 | 19.20 | 11.52 | 11.52 |
Solution
Sales for year 4 = $30,000
Variable costs for year 4 = $30,000 *65% = $19,500
Fixed costs = $14,000
Depreciation = Cost of fixed assets*MACRS rate for year 4 = $70,000 * 11.52% = $8,064
Operating income before taxes = Sales – Variable costs – Fixed costs – Depreciation
Operating income before taxes = $30,000 - $19,500 - $14,000 - $8,064 = -$11,564
Tax savings on operating income = $11,564 * 36% = $4,163.04
Operating income after tax savings = -$11,564+$4,163.04 = -$7,400.96
Operating cash flow = Operating income after tax savings + Depreciation
Operating cash flow for yea r4 = -$7,400.96+$8,064 = $663.04
This amount can be entered in financial calculator using CFj against year 4 cash flow as positive value.
