(Calculating operating cash flows) The Heritage Farm Implement Company is considering an investment that is expected to generate revenues of $2,550,000 per year. The project will also involve annual cash expenses (including both fixed and variable costs) of $1,100,000, while increasing depreciation by $380,000 per year. If the firm's tax rate is 30 percent, what is the project's estimated net operating profit after taxes? What is the project's annual operating cash flow? At a tax rate of 30%, the project's estimated net operating profit after taxes (NOPAT) is $, (Round to the nearest dollar.)
To calculate the project's estimated net operating profit after taxes (NOPAT), we need to subtract the taxes from the net operating profit (NOP) of the project.
The net operating profit (NOP) is calculated by subtracting the annual cash expenses and depreciation from the revenues:
NOP = Revenues - Expenses - Depreciation
= $2,550,000 - $1,100,000 - $380,000
= $1,070,000
Next, we multiply the NOP by the tax rate to calculate the taxes:
Taxes = NOP * Tax rate
= $1,070,000 * 0.30
= $321,000
Finally, we subtract the taxes from the NOP to calculate the estimated net operating profit after taxes (NOPAT):
NOPAT = NOP - Taxes
= $1,070,000 - $321,000
= $749,000
Therefore, the project's estimated net operating profit after taxes (NOPAT) is $749,000.
To calculate the project's annual operating cash flow, we need to add back the depreciation to the NOPAT:
Operating cash flow = NOPAT + Depreciation
= $749,000 + $380,000
= $1,129,000
Therefore, the project's annual operating cash flow is $1,129,000.
To calculate the project's estimated net operating profit after taxes (NOPAT), you need to subtract the tax amount from the operating profit.
1. First, calculate the operating profit:
Operating Profit = Revenues - Cash Expenses - Depreciation
Operating Profit = $2,550,000 - $1,100,000 - $380,000
Operating Profit = $1,070,000
2. Next, calculate the tax amount:
Tax = Tax Rate * Operating Profit
Tax = 0.30 * $1,070,000
Tax = $321,000
3. Finally, calculate the estimated net operating profit after taxes (NOPAT):
NOPAT = Operating Profit - Tax
NOPAT = $1,070,000 - $321,000
NOPAT = $749,000
At a tax rate of 30%, the project's estimated net operating profit after taxes (NOPAT) would be $749,000. (Round to the nearest dollar.)
To determine the project's annual operating cash flow, we need to adjust the NOPAT by adding back the depreciation:
Annual Operating Cash Flow = NOPAT + Depreciation
Annual Operating Cash Flow = $749,000 + $380,000
Annual Operating Cash Flow = $1,129,000
Therefore, the project's annual operating cash flow would be $1,129,000.