question archive What is the operating cash flow (OCF) for year 3 of the car wash project that Platinum Water Recycling should use in its NPV analysis of the project? Platinum Water Recycling operates a(n) medical clinic
What is the operating cash flow (OCF) for year 3 of the car wash project that Platinum Water Recycling should use in its NPV analysis of the project? Platinum Water Recycling operates a(n) medical clinic
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What is the operating cash flow (OCF) for year 3 of the car wash project that Platinum Water Recycling should use in its NPV analysis of the project? Platinum Water Recycling operates a(n) medical clinic. The firm is evaluating the car wash project, which would involve opening a car wash. During year 3, the car wash project is expected to have relevant revenue of 877,000 dollars, relevant variable costs of 313,400 dollars, and relevant depreciation of 85,500 dollars. In addition, Platinum Water Recycling would have one source of fixed costs associated with the car wash project. Yesterday, Platinum Water Recycling signed a deal with Blue Eagle Marketing to develop an advertising campaign for use in the car wash project. The terms of the deal require Platinum Water Recycling to pay 35,400 dollars to Blue Eagle Blue Eagle in 3 years from today. The tax rate is 45 percent.
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Operating cash flows = Operating Income + Depreciation - Taxes +/(-) Decrease/(Increase) in working capital.
Operating Income = Gross Income - Operating Expenses - Depreciation.
= ($877,000 - $313,400) - $35,400 - $85,500
= $442,700.
Taxes = $442,700 x 45% = $199,215.
Increase in Working capital = $35,400 (ie. Advertising Expenses to Blue Eagle Marketing )
Operating cash flows = $442,700 + $85,500 - $199,215 -$35,400
= $293,585.
Therefore, The Operating Cash Flow (OCF) for year 3 of the car wash project that Platinum Water Recycling should use in its NPV analysis of the project = $293,585
