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 $2,400,000. 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 $2,250,000 in annual sales, with costs of $1,240,000. Required: If the tax rate is 30 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).

Explanation / Answer

Depreciation = > $ 2400000 / 3 => $800000

cash inflow => 2250000 - 1240000 - 8000000=> 210000

Aftertax cash inflow=> 210000 * 70% => $147000

OCF => after tax cash inflow + depreciation

=> 147000 + 800000=> 947000

OCF => $ 947000

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