A. Captain Crunch, Inc. is looking at a project that will cost $550,000 and last 5 years. A first analysis used straight line depreciation, but if $200,000 was recognized in year 1 as the depreciation expense, what would be the effect on the Operating Cash Flow for Year 1 if the tax rate is 40%?
b. Captain Crunch, Inc. now thinks that it can realize a pre-tax salvage value of $90,000 when the project is over in 5 years. With a tax rate of 40% and a required return on 15%, what is the effect of this on the project's NPV?
c. When starting the project, Captain Crunch, Inc. realized that it needed $50,000 in net working capital at the beginning of the project. At a required return of 15%, what impact does this have on the project's NPV?
d. The sales from Captain Crunch, Inc. project are expected to be $600,000 per year, with costs running 50% of sales. Using the straight line depreciation calculated in problem 1, what is the project's Operating Cash Flow? (Hint: Look at the various methods to determine OCF.)