CTU Inc., a U.S. firm, is considering an investment project in England. The current exchange rate is $1.2=$1. The firm assumes that the exchange rate will remain the same for the next 3 years. Based on the agreement with the U.K. government, the firm will be able to remit 100% of the cash flow generated from the project. The government will levy a 10% withholding tax on the remittance. The monetary amounts in the following tables are denominated in the pound. 

What is the operating cash flow (in the pound) for year 3?

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Equipment economic life (year) WACC for the project Nominal growth rate Foreign tax rate (T) Initial investment in NWC Cost of equipment Cost of factory building Salvage value, equipment Salvage value, factory building Revenue (year 1) Fixed cost (year 1) Variable cost (% of revenue) Annual depreciation Withholding tax on remitted funds 3 0.12 0.10 0.40 90 900 1,000 200 800 4,000 200 0.40 300 0.10 Equipment economic life (year) WACC for the project Nominal growth rate Foreign tax rate (T) Initial investment in NWC Cost of equipment Cost of factory building Salvage value, equipment Salvage value, factory building Revenue (year 1) Fixed cost (year 1) Variable cost (% of revenue) Annual depreciation Withholding tax on remitted funds 3 0.12 0.10 0.40 90 900 1,000 200 800 4,000 200 0.40 300 0.10

Answer rating: 100% (QA)

To calculate the operating cash flow for year 3 we need to consider the revenue cost... View the full answer