Problem
Kenora Industries is analyzing a new project. They have gathered the following data:
|
|
Worst Case
|
Base Case
|
Best Case
|
|
Sales quantity
|
8,500
|
9,000
|
9,500
|
|
Sales price per unit
|
$9.25
|
$9.75
|
$10.25
|
|
Variable cost per unit
|
$4.90
|
$5.10
|
$5.50
|
|
Fixed cost
|
$14,000.00
|
$17,000.00
|
$20,000.00
|
Initial requirement for equipment: $140,000
Depreciation: Straight-line to zero over the four-year life of the project with no salvage value.
Required rate of return: 15%
Marginal tax rate: 35%
What is the operating cash flow under the base-case scenario?