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
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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