Summer Tyme, Inc., is considering a new 5-year expansion project that requires a

Question

Summer Tyme, Inc., is considering a new 5-year expansion project that requires an initial fixed asset investment of $4.320 million. The fixed asset will be depreciated straight-line to zero over its 5-year tax life, after which time it will be worthless. The project is estimated to generate $3,840,000 in annual sales, with costs of $1,536,000.    Required: If the tax rate is 30 percent, what is the OCF for this project?
rev: 09_18_2012 $1,965,600 $2,304,000 $1,778,400 $1,872,000 $1,008,000
Summer Tyme, Inc., is considering a new 5-year expansion project that requires an initial fixed asset investment of $4.320 million. The fixed asset will be depreciated straight-line to zero over its 5-year tax life, after which time it will be worthless. The project is estimated to generate $3,840,000 in annual sales, with costs of $1,536,000.    Required: If the tax rate is 30 percent, what is the OCF for this project?
rev: 09_18_2012 $1,965,600 $2,304,000 $1,778,400 $1,872,000 $1,008,000
Summer Tyme, Inc., is considering a new 5-year expansion project that requires an initial fixed asset investment of $4.320 million. The fixed asset will be depreciated straight-line to zero over its 5-year tax life, after which time it will be worthless. The project is estimated to generate $3,840,000 in annual sales, with costs of $1,536,000.    Required: If the tax rate is 30 percent, what is the OCF for this project?
rev: 09_18_2012 $1,965,600 $2,304,000 $1,778,400 $1,872,000 $1,008,000
Summer Tyme, Inc., is considering a new 5-year expansion project that requires an initial fixed asset investment of $4.320 million. The fixed asset will be depreciated straight-line to zero over its 5-year tax life, after which time it will be worthless. The project is estimated to generate $3,840,000 in annual sales, with costs of $1,536,000.    Required: If the tax rate is 30 percent, what is the OCF for this project?
rev: 09_18_2012 $1,965,600 $2,304,000 $1,778,400 $1,872,000 $1,008,000
Summer Tyme, Inc., is considering a new 5-year expansion project that requires an initial fixed asset investment of $4.320 million. The fixed asset will be depreciated straight-line to zero over its 5-year tax life, after which time it will be worthless. The project is estimated to generate $3,840,000 in annual sales, with costs of $1,536,000.    Required: If the tax rate is 30 percent, what is the OCF for this project?
rev: 09_18_2012 $1,965,600 $2,304,000 $1,778,400 $1,872,000 $1,008,000
$1,965,600 $2,304,000 $1,778,400 $1,872,000 $1,008,000
Summer Tyme, Inc., is considering a new 5-year expansion project that requires an initial fixed asset investment of $4.320 million. The fixed asset will be depreciated straight-line to zero over its 5-year tax life, after which time it will be worthless. The project is estimated to generate $3,840,000 in annual sales, with costs of $1,536,000.

Explanation / Answer

Depreciation= 4.32/5= 864000
Profit= 3840000-1536000= 2304000
Profit after depreciaton= 2304000-864000=1440000
Profit after tax= 1440000*(1-.30)=1008000
Add :Depreciation= 1008000+864000=1872000
So, OPC= $1872000..answer

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