Please work problem out. Phone Home, Inc. is considering a new 6-year expansion
ID: 2706517 • Letter: P
Question
Please work problem out.
Phone Home, Inc. is considering a new 6-year expansion project that requires an initial fixed asset investment of $5.876 million. The fixed asset will be depreciated straight-line to zero over its 6-year tax life, after which time it will be worthless. The project is estimated to generate $5,328,000 in annual sales, with costs of $2,131,200. The tax rate is 32 percent. What is the annual operating cash flow for this project?
A.
$1,894,318
B.
$2,211,407
C.
$2,487,211
D.
$2,663,021
E.
$2,848,315
A.
$1,894,318
B.
$2,211,407
C.
$2,487,211
D.
$2,663,021
E.
$2,848,315
Explanation / Answer
Hi,
Please find the answer as follows:
Operating Cash Flow = (5328000 - 2131200)*(1-.32) + 5876000/6*.32 = 2487211
Option C (2487211) is the correct answer.
Thanks.