Question

A gym owner is considering opening a location on the other side of town. The new facility will cost $1.47 million and will be depreciated on a straight-line basis over a 20-year period. The new gym is expected to generate $559,000 in annual sales. Variable costs are 49 percent of sales, the annual fixed costs are $90,500, and the tax rate is 34 percent. What is the operating cash flow?

Multiple Choice

• $91,151

• $219,580

• $201,929

• $334,200

• $153,419

Answer 1

$153,419

Sales	a	$       5,59,000
Variable cost	b=a*49%	$       2,73,910
Contribution margin	c=a-b	$       2,85,090
Fixed cost	d	$       1,64,000
Income before tax	e=c-d	$       1,21,090
Tax Expense	f=e*34%	$           41,171
Net Income	g =e-f	$           79,919
Depreciation expense	h	$           73,500
Operating cash flow	i=g+h	$       1,53,419
Working;
# 1
Straight line depreciation	=	(Cost - Salvage value)/Useful life
	=	(1470000-0)/20
	=	$           73,500
# 2
Fixed cost other than depreciation		$           90,500
Depreciation expense		$           73,500
Total fixed Expense		$       1,64,000