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A project with a life of 7 years is expected to provide annual sales of $350,000...

A project with a life of 7 years is expected to provide annual sales of $350,000 and costs of $245,000. The project will require an investment in equipment of $625,000, which will be depreciated on a straight-line method over the life of the project. You feel that both sales and costs are accurate to +/-10 percent. The tax rate is 35 percent. What is the annual operating cash flow for the best-case scenario?

$106,925

$88,825

$138,175

$60,825

$113,500


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Answer #1
Best Case Scenario
Sales Increase by 10%
Costs Decrease by 10%
Statement Computing Operating Cash Flows In $
Sales 385000.00 (350000*1.10)
Less Costs 220500.00 (245000*0.90)
Less Depreciation 89285.71 (625000/7)
EBT 75214.29
Less Tax@35% 26325.00
EAT 48889.29
Add Depreciation 89285.71
Operating Cash Flows 138175.00
Hence the Correct answer is C. $138175
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