ECON 282 Lecture Notes - Lecture 11: Operating Cash Flow, Cash Flow, Net Income

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Formulas: project cash flow = project operating cash flow project capital spending change in net working capital, calculating operating cash flow (ocf), the bottom-up approach: Ocf = net income + depreciation = ebit taxes + depreciation: the top-down approach: Ocf = revenue costs and expenses taxes: net working capital = inventory + accounts receivable accounts payable. Week 11: project x has an expected sales of 6,000 units per year at a price of ,000 each. Variable costs will run about per unit. Fixed costs for the project will run ,000 per year. Further, we will need to invest a total of ,250,000 in manufacturing equipment. For simplicity, assume that the equipment has a four-year life and is depreciated to zero on a straight-line basis over that period. In four years, the equipment will be worth about half of what we paid for it. ,150,000 in net working capital at the start.

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