Please help Keiper, Inc., is considering a new three-year expansion project that
ID: 2705826 • Letter: P
Question
Please help
Keiper, Inc., is considering a new three-year expansion project that requires an initial fixed asset investment of $2.40 million. 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 $1,980,000 in annual sales, with costs of $675,000. If the tax rate is 34 percent, what is the OCF for this project? (Enter your answer in dollars, not millions of dollars, i.e. 1,234,567.).
Please help
Keiper, Inc., is considering a new three-year expansion project that requires an initial fixed asset investment of $2.40 million. 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 $1,980,000 in annual sales, with costs of $675,000. If the tax rate is 34 percent, what is the OCF for this project? (Enter your answer in dollars, not millions of dollars, i.e. 1,234,567.).
Explanation / Answer
OCF = EBIT + Depreciation - Taxes
Depreciation =2.40 million/3 = 0.8 million =800,000
EBIT =1,980,000 -$675,000 -800,000=$505000
OCF = (505000)*(1-34%)+ 800,000=
$1133300