Question

A project requires an initial capital spending on the fixed asset of $790,395. The asset will be depreciated straight-line to zero over the project's life of 6 years. The project will generate $330,165 in annual sales, with annual operating costs of $220,110. The tax rate is 24%. What is the annual operating cash flow for this project?

Answer 1

The annual operating cash flow is computed as shown below:

= Sales - operating cost - tax expenses

Tax expense is computed as follows:

Profit or loss is computed as follows:

= (Sales - operating cost - depreciation)

= ($ 330,165 - $ 220,110 - $ 790,395 / 6)

= ($ 330,165 - $ 220,110 - $ 131,732.5)

= - $ 21,677.5

Since there is is loss, hence there will not be any tax expenses.

So, the operating cash flow will be as follows:

= $ 330,165 - $ 220,110

= $ 110,055

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answered by: anonymous