A firm sells Gizmos to consumers at a price of $87 per unit. The costs to...

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A firm sells Gizmos to consumers at a price of $87 per unit. Thecosts to produce Gizmos is $30 per unit. The company will sell14,000 Gizmos to consumers each year. The fixed costs incurred eachyear will be $140,000. There is an initial investment to producethe goods of $2,400,000 which will be depreciated straight lineover 5 year life of the investment to a salvage value of $0. Theopportunity cost of capital is 9% and the tax rate is 25%.
1. What is the operating cash flow each year?
2. Using the operating cash flow, what is the net present valueof the investment? And should the project be rejected oraccepted.

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Operating Cash Flow Selling Price Variable cost No ofunits Fixed Cost Depriciation Taxes add backDepriciationOperating Cash Flow 87 See Answer

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A firm sells Gizmos to consumers at a price of $87 per unit. Thecosts to produce Gizmos is $30 per unit. The company will sell14,000 Gizmos to consumers each year. The fixed costs incurred eachyear will be $140,000. There is an initial investment to producethe goods of $2,400,000 which will be depreciated straight lineover 5 year life of the investment to a salvage value of $0. Theopportunity cost of capital is 9% and the tax rate is 25%.1. What is the operating cash flow each year?2. Using the operating cash flow, what is the net present valueof the investment? And should the project be rejected oraccepted.