Quad Enterprises is considering a new three-year expansion project that requires
ID: 2778286 • Letter: Q
Question
Quad Enterprises is considering a new three-year expansion project that requires an initial fixed asset investment of $2.58 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 $2,040,000 in annual sales, with costs of $735,000. If the tax rate is 34 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.) OCF $
Explanation / Answer
OCF = (Sales - Cost)(1 - tax rate) + (tax rate x Depreciation)
OCF = (2,040,000- 735,000)(.66) + [.34x (2580000 / 3)]
OCF =1153700