Keiper, Inc., is considering a new three-year expansion project that requires an

Question

Keiper, Inc., is considering a new three-year expansion project that requires an initial fixed asset investment of $2.46 million. The fixed asset will be depreciated straight-line to zero over its three-year tax life, after which time it will be worthless. The project is estimated to generate $2,000,000 in annual sales, with costs of $695,000. If the tax rate is 35 percent, what is the OCF for this project? (Enter your answer in dollars, not millions of dollars, i.e. 1,234,567.)

Keiper, Inc., is considering a new three-year expansion project that requires an initial fixed asset investment of $2.46 million. The fixed asset will be depreciated straight-line to zero over its three-year tax life, after which time it will be worthless. The project is estimated to generate $2,000,000 in annual sales, with costs of $695,000. If the tax rate is 35 percent, what is the OCF for this project? (Enter your answer in dollars, not millions of dollars, i.e. 1,234,567.)

Explanation / Answer

Depreciation per year=2.46/3

=$820000 per year

Now OCF of the project shall be=(2000000-695000)*0.65+0.35*820000

=$848250+287000

=$1135250 per year

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