The Lumber Yard is considering adding a new product line that is expected to inc

Question

The Lumber Yard is considering adding a new product line that is expected to increase annual sales by $243,000 and cash expenses by $133,000. The initial investment will require $96,000 in fixed assets that will be depreciated using the 5-year MACRS. The company has a marginal tax rate of 28 percent. What is the project OCF in year 2? (Do not include the dollar sign ($). Round your answer to a whole dollar. (e.g, 4,132) MACRS 5-year property Year Rate 20.00% 32.00% 19.20% 11.52% 11.52% 5.76% Your Answer: Answer

Explanation / Answer

Operating Cash Flow (OCF) Calculation:

Operating cash flow (OFC) in Year 2 is $87,802

Year (n) Initial Investments MACRS depreciation percentage Depreciation with MACRS Method (D) Increase in Annual Sales Increase in cash expenses Before taxes cash flow (BTCF) Taxable Income (BTCF - depreciation) Income taxes (Taxable Income *28%) After Tax Net Income (taxable income - taxes) Operating Cash Flow = ( Net Income + depreciation) 0 $96,000 1 20% $19,200 $243,000 $133,000 $110,000 $90,800 $25,424 $65,376 $84,576 2 32% $30,720 $243,000 $133,000 $110,000 $79,280 $22,198 $57,082 $87,802 3 19.20% $18,432 $243,000 $133,000 $110,000 $91,568 $25,639 $65,929 $84,361 4 11.52% $11,059 $243,000 $133,000 $110,000 $98,941 $27,703 $71,237 $82,297 5 11.52% $11,059 $243,000 $133,000 $110,000 $98,941 $27,703 $71,237 $82,297 6 5.76% $5,530 $243,000 $133,000 $110,000 $104,470 $29,252 $75,219 $80,748

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