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Fairfax Paint operates stores in Virginia. The firm is evaluating the Vienna project, which would involve...

Fairfax Paint operates stores in Virginia. The firm is evaluating the Vienna project, which would involve opening a new store in Vienna. During year 1, Fairfax Paint would have total revenue of 388,000 dollars and total costs of 211,000 dollars if it pursues the Vienna project, and the firm would have total revenue of 339,000 dollars and total costs of 191,000 if it does not pursue the Vienna project. Depreciation taken by the firm would be 61,000 dollars if the firm pursues the project and 40,000 dollars if the firm does not pursue the project. The tax rate is 30 percent. What is the relevant operating cash flow (OCF) for year 1 of the Vienna project that Fairfax Paint should use in its NPV analysis of the Vienna project?

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Answer #1

Based on the given data, the incremental revenue, incremental cost and the differential depreciation are considered to calculate the Operational Cash Flow for Year 1;

Answer: Relevant operating cash flow (OCF) for year 1 of the Vienna project is $ 26600

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