You are analyzing a project and have developed the following estimates.The depreciation is $5,800 a year and the tax rate is 35 percent.What is the best-case operating cash flow? $$\begin{array} { | l | r | r | r | }
\hline & \text { Base-Case } & \text { Lower Bound } & \text { Upper Bound } \
\hline \text { Unit sales } & 800 & 750 & 850 \
\hline \text { Sales price per unit } & \$ 29 & \$ 28 & \$ 30 \
\hline \text { Variable cost per unit } & \$ 13 & \$ 11 & \$ 15 \
\hline \text { Fixed costs } & \$ 6,800 & \$ 6,000 & \$ 7,600 \
\hline
\end{array}$$

Question

You are analyzing a project and have developed the following estimates.The depreciation is $5,800 a year and the tax rate is 35 percent.What is the best-case operating cash flow? $$\begin{array} { | l | r | r | r | } 
\hline & \text { Base-Case } & \text { Lower Bound } & \text { Upper Bound } \
\hline \text { Unit sales } & 800 & 750 & 850 \
\hline \text { Sales price per unit } & \$ 29 & \$ 28 & \$ 30 \
\hline \text { Variable cost per unit } & \$ 13 & \$ 11 & \$ 15 \
\hline \text { Fixed costs } & \$ 6,800 & \$ 6,000 & \$ 7,600 \
\hline
\end{array}$$

Quizplus · Accepted Answer

The best-case scenario involves the highest sales and lowest costs. Calculate operating cash flow using: OCF = (Sales - Variable Costs - Fixed Costs - Depreciation) * (1 - Tax Rate) + Depreciation. For best-case: Sales = 850 * $30, Variable Costs = 850 * $11, Fixed Costs = $6,000. Plug these into the formula to get the OCF.

You Are Analyzing a Project and Have Developed the Following