Question

A company is considering a new 6-year project that will have annual sales of $255,000 and costs of $160,000. The project will require fixed assets of $279,000, which will be depreciated on a 5-year MACRS schedule. The annual depreciation percentages are 20.00 percent, 32.00 percent, 19.20 percent, 11.52 percent, 11.52 percent, and 5.76 percent, respectively. The company has a tax rate of 35 percent. What is the operating cash flow for Year 2?

Answer 1

Operating cash flow for year 2 is $ 92,998.00

Sales			$   2,55,000.00
Costs			$ -1,60,000.00
Depreciation			$     -89,280.00
Profit before tax			$         5,720.00
Tax Expense			$       -2,002.00
Net income			$         3,718.00
Depreciation			$       89,280.00
Operating Cash Flow			$       92,998.00
Working:
Depreciation Schedule:
Year	Cost	Depreciation rate	Depreciation Expense	Accumulated Depreciation Expense	Book Value
	a	b	c=a*b	d	e=a-d
1	$ 2,79,000.00	20.00%	$       55,800.00	$     55,800.00	$ 2,23,200.00
2	$ 2,79,000.00	32.00%	$       89,280.00	$ 1,45,080.00	$ 1,33,920.00
3	$ 2,79,000.00	19.20%	$       53,568.00	$ 1,98,648.00	$     80,352.00
4	$ 2,79,000.00	11.52%	$       32,140.80	$ 2,30,788.80	$     48,211.20
5	$ 2,79,000.00	11.52%	$       32,140.80	$ 2,62,929.60	$     16,070.40
6	$ 2,79,000.00	5.76%	$       16,070.40	$ 2,79,000.00	$ 00.00