Question

A company is considering a new 6-year project that will have annual sales of $207,000 and costs of $128,000. The project will require fixed assets of $247,000, which will be depreciated on a 5-year MACRS schedule. The annual depreciation percentages are 20.00 percent, 32.00 percent, 19.20 percent, 11.52 percent, 11.52 percent, and 5.76 percent, respectively. The company has a tax rate of 34 percent. What is the operating cash flow for Year 2?

Answer #1

**Given,**

**Annual sales = $207000**

**Costs = $128000**

**Fixed asset = $247000**

**Depreciation rate for year 2 = 32.00%**

**Tax rate = 34% or 0.34**

**Solution :-**

**Depreciation for year 2 = Fixed asset x depreciation
rate for year 2**

**= $247000 x 32.00% = $79040**

**Operating cash flow for year 2**

**= (Annual sales - cost - depreciation for year 2) x (1 -
tax rate) + depreciation for year 2**

**= ($207000 - $128000 - $79040) x (1 - 0.34) +
$79040**

**= (-$40) x (0.66) + $79040**

**= -$26.40 + $79040 = $79013.60**

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