laurels lawn care Econnect IFINANCE Brealey: Fundam Library Course: S 610 CCCOB

Question

laurels lawn care Econnect IFINANCE Brealey: Fundam Library Course: S 610 CCCOB 64 Week 5 Homework Question 2 (of 10) 2. 5.00 ponts 5.00 points Laurer's Lawn Care, Ltd, has a new mower line that can generate revenues of $120,000 per year. Direct production costs are $40,000, and the fixed costs of maintaining the lawn mower factory are $15,000 a year. The factory originally cost $1 million and is being depreciated for tax purposes over 25 years using straight-line depreciation Calculate the operating cash flows or the project te firms tax bracket is 35% (Enter your answer in dollars not in millions.) Operating cash flows eBook & Resources eBook Calculating Cash Fl

Explanation / Answer

Operating Cash Flow = [(Revenue - Direct Production costs - Fixed Costs - Depreciation) x (1 - tax Rate)] + Depreciation

(Depreciation, being a non-cash expense, is added back)

Here, annual depreciation = $1 million / 25 = $40,000

Operating Cash Flow = [120,000 - 40,000 - 15,000 - 40,000] x (1 - 0.35) + 40,000 = 56,250

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