Question

Based on the following information, what is the relevant operating cash flow (OCF) associated with the project expected to be in year 3? The project would require an initial investment in equipment of 900,000 dollars that would be depreciated using MACRS where the depreciation rates in years 1, 2, 3, and 4 are 40 percent, 23 percent, 23 percent, and 14 percent, respectively. At the end of the project in 3 years, the equipment would be sold for an expected after-tax cash flow of 17,200 dollars. In year 3 of the project, relevant revenue associated with the project would be 462,300 dollars and relevant costs associated with the project would be 289,600 dollars. The tax rate is 20 percent.

Answer 1

The operating Cash flow in year 3 = $189,900

Please see the excel model below for calculation