OCF = Operating Cash FlowI believe the formula for OCF is: OCF= ((P-VC)*Q-FC) (1-t) + t (D))(You provided OCF= (P-V) (Q-FC) (1-t) + t (D))The formula reads: amount making per unit (P-VC) times the number of units (Q) less the fixed costs. Tax is then accounted for. Note the t(D) calculation is simply adding the tax benefit of depreciationP = price = $200 per ton VC = Variable Costs = $180 per ton Q = Quantity = 50,000 FC = Fixed Costs = $450,000 t = Tax rate = 39%D = Depreciation = (Paid – Salvage)/ Years = (1,750,000 – 513,000) / 8 years = $154,625 OCF = ((200-180)*50,000-450,000) (1-.39) + .39*(154,625)) = 395,803.75 (per year)An NPV formula for this project is: NPV = Total investment (-) + PV of OCF + PV of investment changeTotal investment = -1,750,000-450,000 = -2,200,000PV of OCF = (395,803.75 / .12) * (1-(1/(1.12^8))) = 1,966,210.45(this uses a PV of Annuity formulas)
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