Keiper, Inc., is considering a new three-year expansion project that requires an
ID: 2632710 • Letter: K
Question
Keiper, Inc., is considering a new three-year expansion project that requires an initial fixed asset investment of $2.61 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 $2,050,000 in annual sales, with costs of $745,000. If the tax rate is 30 percent, what is the OCF for this project? (Enter your answer in dollars, not millions of dollars, i.e. 1,234,567.)
Keiper, Inc., is considering a new three-year expansion project that requires an initial fixed asset investment of $2.61 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 $2,050,000 in annual sales, with costs of $745,000. If the tax rate is 30 percent, what is the OCF for this project? (Enter your answer in dollars, not millions of dollars, i.e. 1,234,567.)
Explanation / Answer
Keiper, Inc., is considering a new three-year expansion project that requires an initial fixed asset investment of $2.61 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 $2,050,000 in annual sales, with costs of $745,000. If the tax rate is 30 percent, what is the OCF for this project? (Enter your answer in dollars, not millions of dollars, i.e. 1,234,567.)
Annual Depreciation = 2610000/3 = 870000
Net Income before tax = 2050000 - 745000 - 870000 = 435,000
Tax Expenses = 435000*30% = 130500
Net Income = 304500
Annual OCF = Net Income + Annual Depreciation
Annual OCF = 304500 + 870000
Annual OCF = $ 1,174,500
Answer
OCF $ 1,174,500
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