Chapter $10$ Making Capital Investment Decisions $-$ Example $2$

Martin Enterprises needs someone to supply it with $129,000$ cartons of machine screws per year to support its manufacturing needs over the next five years, and you've decided to bid on the contract. It will cost you $$930,000$ to install the equipment necessary to start production; you'll depreciate this cost straight$-$line to zero salvage value over the project's life. You estimate that, in five years, this equipment could be worth $$97,000($before taxes$).$ Your fixed production costs will be $$505,000$ per year, and your variable production costs should be $$17\mathrm{.}75$ per carton. You also need an initial investment in net working capital of $$98,000.$ Assume your tax rate is $24$ percent and you require a return $($discounting rate$)$ of $10$ percent on your investment.

Assuming that the price per carton is $$26\mathrm{.}80,$ prepare a pro forma income statement.

$\backslash$table$[[,$Annual Net Income$],[$Sales$,],[$Variable costs,$],[$Fixed costs,$],[$Depreciation$,],[$EBIT$,],[$Taxes $(24\%),],[$Net Income,$]]$

What is the operating cash flow $($OCF$)?$