Question

The Book Store is considering a new four-year expansion project that requires an initial fixed asset investment of $2.8 million. The fixed asset will be depreciated straight-line to zero over its four-year life, after which time it will be worthless. The project is estimated to generate $1.49 million in annual sales, with costs of $.79 million. If the tax rate is 40 percent, what is the OCF for this project?

Answer 1

Sales	$                1,490,000
Less:
Costs	$                   790,000
Depreciation	$                   700,000	=2800000/4
EBIT	$                              -
Less: Tax payable @ 40%	$                              -
Net income	$                              -
Add: Depreciation	$                   700,000
Operating cash flow	$   700,000