QUESTION 18 A company is considering a 5-year project to open a new product line
ID: 2758268 • Letter: Q
Question
QUESTION 18
A company is considering a 5-year project to open a new product line. A new machine with an installed cost of $80,000 would be required to manufacture their new product, which is estimated to produce sales of $70,000 in new revenues each year. The cost of goods sold to produce these sales (not including depreciation) is estimated at 46% of sales, and the tax rate at this firm is 36%. If straight-line depreciation is used to calculate annual depreciation, what is the estimated annual operating cash flow from this project each year? (Answer to the nearest dollar.)
Explanation / Answer
Sales $ 70,000 Less: Costs $ 32,200 Dereciation $ 16,000 EBIT $ 21,800 Less: Interest $ - Profit before tax (PBT) $ 21,800 Less: Tax @36% $ 7,848 Net income $ 13,952 Add: Depreciation $ 16,000 Operating cash flows (OCF) $ 29,952