Quad Enterprises is considering a new three-year expansion project that requires
ID: 2760384 • Letter: Q
Question
Quad Enterprises is considering a new three-year expansion project that requires an initial fixed asset investment of $2.91 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 $2,150,000 in annual sales, with costs of $845,000. If the tax rate is 30 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.)
Quad Enterprises is considering a new three-year expansion project that requires an initial fixed asset investment of $2.91 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 $2,150,000 in annual sales, with costs of $845,000. If the tax rate is 30 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
Operating cash Flow Annual sales 2150000 Less : Costs 845000 : Depriciation ( 2.91m/3) 970000 1815000 Net Income 335000 Tax @ 30% 100500 Net Income after tax 234500 Operating cash flow Net Income after tax 234500 Add : Depriciation 970000 Net operating cash flow 1204500