Keiper, Inc., is considering a new three-year expansion project that requires an
ID: 2627062 • Letter: K
Question
Keiper, Inc., is considering a new three-year expansion project that requires an initial fixed asset investment of $2.40 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 $1,980,000 in annual sales, with costs of $675,000. If the tax rate is 34 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 $2.40 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 $1,980,000 in annual sales, with costs of $675,000. If the tax rate is 34 percent, what is the OCF for this project? (Enter your answer in dollars, not millions of dollars, i.e. 1,234,567.)
Explanation / Answer
OCF = (1980000-675000)*(1-34%) + 2400000/3 * 34%
OCF = $ 1,133,300
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