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    cecilia86611's Avatar
    cecilia86611 Posts: 2, Reputation: 1
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    #1

    May 1, 2011, 05:42 PM
    Operating cash flows and depreciation
    I have a question in my homework here.. and I CAN NOT figure out the right equation to find it and can NOT find examples for it.. so ANY help would be great! I will post the question!! THANKS!

    McDermott Technologies is evaluating a new project that requires $800,000 in new equipment. McDermott estimates that the new project will generate $900,000 in annual sales at the end of each of the next four years and that operating costs (excluding depreciation) will equal $400,000. Suppose the firm depreciates the equipment using the straight-line method over four years and the firm's tax rate is 40%. If the project's WACC is 9.9%, what is the present value of the projects OCF's?

    Then the SECOND part of the question is...

    2.Suppose that McDermott uses Modified Accelerated Cost Recovery System (MACRS) depreciation rates instead. The applicable rates are 33%, 45%, 15%, and 7%, respectively. Recalculate the firm's OCFs and find their present value now (still assuming the WACC of 9.9%,
    smoothy's Avatar
    smoothy Posts: 25,490, Reputation: 2853
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    #2

    May 2, 2011, 06:02 AM

    Read this first: Expectations for the Homework Help board
    Do not simply retype or paste a question from your book or study material

    We won't do your homework questions for you.
    You were given the assignment for you to learn.

    If you come up with your own answer and post it for us to critique that is within reason.

    If you have some SPECIFIC questions that you couldn't find or didn't understand, we may help with that.
    But this is your assignment, so show us you have at least attempted to complete it on your own.

    Thank you.
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