Quad Enterprises is considering a new three-year expansion project that requires
ID: 2765242 • Letter: Q
Question
Quad Enterprises is considering a new three-year expansion project that requires an initial fixed asset investment of $2.76 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 $2,100,000 in annual sales, with costs of $795,000. If the tax rate is 34 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 $2.76 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 $2,100,000 in annual sales, with costs of $795,000. If the tax rate is 34 percent, what is the OCF for this project?
Explanation / Answer
Sales $ 2,100,000 Less: Costs $ 795,000 Dereciation $ 920,000 EBIT $ 385,000 Less: Tax @34% $ 130,900 Net income $ 254,100 Add: Depreciation $ 920,000 Operating cash flows (OCF) $ 1,174,100