Question

Bad Company has a new 4-year project that will have annual sales of 9,000 units. The price per unit is $20.50 and the variable cost per unit is $8.25. The project will require fixed assets of $100,000, which will be depreciated on a 3-year MACRS schedule. The annual depreciation percentages are 33.33 percent, 44.45 percent, 14.81 percent, and 7.41 percent, respectively. Fixed costs are $40,000 per year and the tax rate is 34 percent. What is the operating cash flow for Year 3?

Answer 1

Given, annual sales = 9,000 units

price per unit = $20.50

variable cost per unit = $8.25

fixed assets = $100,000

Depreciation for 3rd year = 14.81 percent

Fixed costs = $40,000

tax rate = 34 percent

Operating cash flow for Year 3 is calculated below :

Particulars	Calculation	Amount ($)
Sales	9,000 x 20.5	184,500
Variable Cost	9,000 x 8.25	-74,250
Fixed Costs		-40,000
Depreciation	100,000 x 14.81%	-14,810
EBT		55,440
Tax	55,440 x 34%	-18,849.6
EAT	EBT - Tax	36,590
OCF	EAT + Depreciation	51,400