Question

Hubrey Home Inc. is considering a new three-year expansion project that requires an initial fixed asset investment of $2.9 million. The fixed asset falls into Class 10 for tax purposes (CCA rate of 30% per year), and at the end of the three years can be sold for a salvage value equal to its UCC. The project is estimated to generate $2,550,000 in annual sales, with costs of $808,000. If the tax rate is 35%, what is the OCF for each year of this project? (Enter the answers in dollars. Do not round your intermediate calculations. Round the final answers to 2 decimal places. Omit $ sign in your response.) OCF1 $ OCF2 $ OCF3 $

Answer 1

Depreciation workings
Year	Depn.	UCC	Explanation for Depn.
0		2900000
1	435000	2465000	(2900000*50%*30%)
2	739500	1725500	Previous UCC*30%
3	517650	1207850	Previous UCC*30%

OCF Calculations
Year	0	1	2	3
1.Annual sales		2550000	2550000	2550000
2.Annual costs		-808000	-808000	-808000
3.Depn.(Ref. table)		-435000	-739500	-517650
4.EBIT(1+2+3)		1307000	1002500	1224350
5.Tax at 35%(4*35%)		-457450	-350875	-428523
6.NOPAT/EAT(4+5)		849550	651625	795827.5
7.Add back: depn.(Row 3)		435000	739500	517650
8.Operating cash flows(OCF)(6+7)		1284550	1391125	1313478	(ANSWER)