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 $1.296 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 $1,152,000 in annual sales, with costs of $460,800.    Required: If the tax rate is 33 percent, what is the OCF for this project? Summer Tyme, Inc., is considering a new 5-year expansion project that requires an initial fixed asset investment of $1.296 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 $1,152,000 in annual sales, with costs of $460,800.

Explanation / Answer

Hi,

Please find the answer as follows:

Answer is 548640.

Thanks.

Sales 1152000 Less Costs 460800 Less Depreciation (1296000/5) 259200 EBT 432000 Less Taxes 142560 EAT 289440 Add Depreciation 259200 Operating Cash Flow 548640

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