Question

A project with a life of 9 years is expected to provide annual sales of \$330,000...

A project with a life of 9 years is expected to provide annual sales of \$330,000 and costs of \$229,000. The project will require an investment in equipment of \$595,000, 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 40 percent. What is the annual operating cash flow for the best-case scenario?

Multiple Choice

• \$94,140

• \$104,894

• \$120,584

• \$89,204

• \$53,504

Homework Answers

Answer #1

Since it is best case scenario -

we consider +10% for sales - so sales = (1+10%)* \$330000= 363000

Cost is -10% so (1-10%) * \$229000 = \$206100

Depreciation per annum = \$595000/ no of years = \$595000/ 9 = 66111.11

Profit before tax = sales - cost - depreciaiton = 363000 - 206100 - 66111.11 = \$ 90788.89

Net income = (1- tax rate%) * profit before tax = (1-40%)*\$90788.89= \$ 54473.33

Operating cashflow = net income+ depreciation = \$ 54473.33 + 66111.11 = \$120584.44; so apprx \$ 120584

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