Rock Haven has a proposed project that will generate sales of 1,875 units annual

Question

Rock Haven has a proposed project that will generate sales of 1,875 units annually at a selling price of $33 each. The fixed costs are $18,400 and the variable costs per unit are $10.35. The project requires $34,600 of fixed assets that will be depreciated on a straight-line basis to a zero book value over the 4-year life of the project. The salvage value of the fixed assets is $9,100 and the tax rate is 40 percent. What is the operating cash flow? Multiple Choice $28.281 $13,088 $22.053 $10,981 $17,901

Explanation / Answer

Annual depreciation=(Cost-Value at end of useful life)/Useful Life

=(34600/4)=$8650

Sales(1875*33) $61875 Less:variable costs(1875*10.35) $19406.25 Less:fixed costs $18400 Less:depreciation $8650 Earnings before taxes $15418.75 Less:tax@40%(0.4*$15418.75) ($6167.5) Net income $9251.25 Add:depreciation $8650 Operating cash flow $17901(Approx).

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