The Datum Co. has currently completed a $200,000, two-year marketing study. Based on results of study, Datum has evaluated that 6,000 units of its new electro-optical data scanner could be sold annually over next 8 years, at price of $8,000 each. Variable costs per unit are $4,400, and fixed costs total $5.4 million per year.
Start-up costs include $17.6 million to make production facilities, $1.5 million for land, and $4 million in net working capital. $17.6 million facility will be decreased on straight-line basis to value of zero over eight-year life of project. At the end of project's life, facilities (including the land) will be sold for estimated $4.7 million. Value of land is not expected to change during eight year period.
At last start-up would also entail tax-deductible expenses of $0.4 million at year zero. Datum is ongoing, profitable business and pays taxes at 35% rate on all income and capital gains. Datum has 20% opportunity cost for projects such as this one.
Determine operating cash flow that Datum's project produce each year during its life?
Determine the initial cash flow at year 0?