Question

Bennett Co. has a potential new project that is expected to generate annual revenues of $255,800,...

Bennett Co. has a potential new project that is expected to generate annual revenues of $255,800, with variable costs of $141,200, and fixed costs of $59,200. To finance the new project, the company will need to issue new debt that will have an annual interest expense of $21,000. The annual depreciation is $23,800 and the tax rate is 40 percent. What is the annual operating cash flow?

  • $173,816

  • $124,120

  • $79,200

  • $42,760

  • $43,920

Homework Answers

Answer #2

Answer

OCF or Operating Cash Flow = (Revenue - Variable Cost - Fixed Cost - Depriciation)*(1- Tax Rate)+ Depriciation
We need to add back depriciation as it is a non cash item in order to arrive to our operating Cash Flow.

Please note that interet cost of debt will not be comming under operating cash flow, it will come under Cash Flow form Financing Operations.

Given the following

Revenue = $ 255800

Variable Cost = $ 141200

Fixed Cost = $ 59200

Depriciation = $ 23800

Tax Rate = 40 %

OCF = ($ 255800 - $ 141200 - $ 59200 - $ 23800) (1 - 0.40) +$ 23800

OCF =  $ 42760

answered by: anonymous
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