Assume that a new project will annually generate revenues of 1,800,000 and cash

Question

Assume that a new project will annually generate revenues of 1,800,000 and cash expenses (including both fixed and variable costs) of 600,000 while increasing depreciation by 190,000 per year. In addition, the firms tax rate is 37%. Calculate the operating cash flows for the new project.

Assume that a new project will annually generate revenues of 1,800,000 and cash expenses (including both fixed and variable costs) of 600,000 while increasing depreciation by 190,000 per year. In addition, the firms tax rate is 37%. Calculate the operating cash flows for the new project.

Explanation / Answer

the gross margin= 1,800,000- 600,000

= $1,200,000 and dpereciation is 190,000, it should deduct from the gross margin

= 1,200,000- $190,000= 1,010,000, and deduct tax from this amount with 35%

= 1,010,000 - 373,700 (37%)

net cash inflow= $636,300

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