Quad Enterprises is considering a new three-year expansion project that requires
ID: 2733858 • Letter: Q
Question
Quad Enterprises is considering a new three-year expansion project that requires an initial fixed asset investment of $2.97 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 $2,170,000 in annual sales, with costs of $865,000. If the tax rate is 35 percent, what is the OCF for this project?
Quad Enterprises is considering a new three-year expansion project that requires an initial fixed asset investment of $2.97 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 $2,170,000 in annual sales, with costs of $865,000. If the tax rate is 35 percent, what is the OCF for this project?
Explanation / Answer
Quad Enterprises All Amounts in $ Generation of Cash Flows for the project Sales 2170000 Costs 865000 Depreciation 990000 1855000 Income before Taxes 315000 Tax Impact @ 35% 110250 Income Post Taxes 204750 Operating Cash Flow (OCF) Income post taxes 204750 Add : Depreciation 990000 Add : Income Taxes 110250 1100250 Operating Cash Flow 1305000