Question

Marie's Fashions is considering a project that will require $30,000 in net working capital and $95,000 in fixed assets. The project is expected to produce annual sales of $99,000 with associated costs of $50,000. The project has a 5-year life. The company uses straight-line depreciation to a zero book value over the life of the project. The tax rate is 33 percent. Calculate operating cash flow. (Do not include the dollar signs ($). Round your answers to the nearest whole dollar amount. (e.g., 32))

Answer 1

Sales	a	$           99,000
Variable cost	b	50,000
Contribution margin	c=a-b	49,000
Fixed cost	d	19,000
Income before tax	e=c-d	30,000
Tax Expense	f=e*33%	9,900
Net Income	g	20,100
Depreciation expense	d	19,000
Operating cash flow	i=g+d	$           39,100
Working;
# 1
Straight line depreciation	=	(Cost - Salvage value)/Useful life
	=	(95000-0)/5
	=	$           19,000