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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?

Project Management, Management Studies

  • Category:- Project Management
  • Reference No.:- M933188

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