Question

Rock Haven has a proposed project that will generate sales of 1,935 units annually at a selling price of $37 each. The fixed costs are $20,400 and the variable costs per unit are $11.95. The project requires $37,000 of fixed assets that will be depreciated on a straight-line basis to a zero book value over the 4-year life of the project. The salvage value of the fixed assets is $9,900 and the tax rate is 34 percent. What is the operating cash flow?

A.) $15,382

B.) $12,689

C.) $31,107

D.) $21,672

E.) $25,446

Answer 1

	Computation of operating cash flow
	Contribution margin		48,472
	1,935*(37-11.95)
less	Fixed cost		20,400
less	Depreciation		9,250
	37000/4
	Profit before tax		18,822
	Tax @ 34%		6,399
	Net income		12,422
	Operating cash flow		21,672
	(net income + Depreciation)
	answer = option D)		21,672