Cochrane. Inc.. is considering a new three-year expansion project that requires

Question

Cochrane. Inc.. is considering a new three-year expansion project that requires an initial fixed asset investment of $2,280,000. 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 $2,210,000 in annual sales. with costs of $1, 200,000. Required: If the tax rate is 35 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

Net Revenue = 2210000-1200000 = $ 1010000

Taxes @ 35% = 353500

Balance 656500

Savings in Taxes due to depreciation = 2280000/3*35% = 266000

Operating Cash Flow per year

= 656500+266000 = $ 922500

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