Cochrane, Inc., is considering a new three-year expansion project that requires

Question

Cochrane, Inc., is considering a new three-year expansion project that requires an initial fixed asset investment of $2,640,000. 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 $2,330,000 in annual sales, with costs of $1,320,000.

If the tax rate is 35 percent, what is the OCF for this project? (Do not round intermediate calculations. Enter your answer in dollars, not millions of dollars (e.g., 1,234,567).)

If the tax rate is 35 percent, what is the OCF for this project? (Do not round intermediate calculations. Enter your answer in dollars, not millions of dollars (e.g., 1,234,567).)

Explanation / Answer

First i use tax shiled approach to calculate the OCF

OCF= (sales-costs)(1-tax rate)+(tax rate *depreciation)

here sales is 2,330,000dollars costs=1,320,000

tax rate=35percent or 0.35

OCF=(2,330,000-1.320,000)(1-0.35)+(0.35*2,640,000/3)

OCF=964,500 dollars

Related Questions

Navigate

• Browse (All)
• Browse C
• Subjects