I need help with this question and it is due soon. Please hurry!!!! Company Z is
ID: 2620511 • Letter: I
Question
I need help with this question and it is due soon. Please hurry!!!!
Company Z is analyzing a 5-year project that has an initial cost for fixed assets of $1.6 million. This cost will be depreciated on a straight-line basis to a zero book value over the life of the project. At the end of the project, the assets will be worthless. The projected annual sales are $1.1 million and the total fixed and variable costs are $.96 million. The tax rate is 34 percent. What is the project's annual operating cash flow?
$78,800 $140,000 $201,200 $561,200
Explanation / Answer
Annual depreciation=(Cost-Salvage value)/Useful Life
=(1,600,000-0)/5=$320,000
Hence annual operating cash flow=(Sales-Costs)*(1-tax rate)+Tax savings on Annual depreciation
=(1,100,000-960,000)(1-0.34)+(0.34*320000)
which is equal to
=$201200.