I attached two different answers for this question. Which is correct, Work A or Work B? If neither, please solve and show work.

Howell Petroleum is considering a new project that complements its existing business. The machine required for the project costs $3.9 million. The marketing department predicts that sales related to the project will be $2.35 million per year for the next four years, after which the market will cease to exist. The machine will be depreciated down to zero over its four-year economic life using the straight-line method. Cost of goods sold and operating expenses related to the project are predicted to be 25 percent of sales. Given the massive initial investment, Howell needs to reduce net working capital by $150,000 immediately. The only increase in NWC will occur at time t=2. At this time, NWC will be increased by $70,000. Any net working capital change will be recovered in full at the end of the project's life. The corporate tax rate is 35 percent. The required rate of return for Howell is 13 percent.

Compute the Operating Cash Flows for the Howell Petroleum company for Year (1) through (4). Show work.

Work A

Cost of Equipment $3.90 Million Life of Equipment 4 years Salvage Value NIL Depreciation per year 5 0.975 Million Particulars Amount in 5 Millions Net Revenue per year 2.3500 Cost of goods sold @25% of sales Contribution per year Less: Depreciation EBIT Less: Tax @3596 Earning after Tax {EAT} Add: Depreciation Free Cash flow per year Operating cash flowr = EBIT * [1-tax] + Depreciation Hence use of change in working capial as well as discount rate as given is not be come in calculating operating cash flow. Hence operating cash flow for year 1 to year 4 = 51.4869 Millions 1) Operating Cash Flow Cost of goods sold & Operating Operating Year Sales operating Expenses = Cash flow Tax @ 35% Cash flow 25% of sales before tax After tax 1 2.35 -0.59 1.76 0.62 S 1.15 2 S 2.35 -0.59 S 1.76 0.62 S 1.15 LU 2.35 -0.59 1.76 0.62 S 1.15 4 2.35 S -0.59 S 1.76 S 0.62 S 1.15