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The Book Store is considering a new four-year expansion project that requires an initial fixed asset...

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Finance

The Book Store is considering a new four-year expansion projectthat requires an initial fixed asset investment of $2.8 million.The fixed asset will be depreciated straight-line to zero over itsfour-year life, after which time it will be worthless. The projectis estimated to generate $1.49 million in annual sales, with costsof $.79 million. If the tax rate is 40 percent, what is the OCF forthis project?

Answer & Explanation Solved by verified expert
3.8 Ratings (690 Votes)

Sales $                1,490,000
Less:
Costs $                   790,000
Depreciation $                   700,000 =2800000/4
EBIT $                              -  
Less: Tax payable @ 40% $                              -  
Net income $                              -  
Add: Depreciation $                   700,000
Operating cash flow $   700,000

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Transcribed Image Text

The Book Store is considering a new four-year expansion projectthat requires an initial fixed asset investment of $2.8 million.The fixed asset will be depreciated straight-line to zero over itsfour-year life, after which time it will be worthless. The projectis estimated to generate $1.49 million in annual sales, with costsof $.79 million. If the tax rate is 40 percent, what is the OCF forthis project?

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