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In: Finance
Ernie's Electrical is evaluating a project which will increase annual sales by $50,000 and costs by...
Ernie's Electrical is evaluating a project which will increase annual sales by $50,000 and costs by $30,000. The project has an initial asset cost of $150,000 that will be depreciated straight-line to a zero book value over the 10-year life of the project. Ignore bonus depreciation. The applicable tax rate is 25 percent. What is the annual operating cash flow for this project?
Solutions
Expert Solution
| Particulars | $ |
| Annual Sales | $ 50,000.00 |
| Less: Annual Costs | $ 30,000.00 |
| Less: Depreciation | $ 15,000.00 |
| Earnings before Tax | $ 5,000.00 |
| Less: Taxes at 25% | $ 1,250.00 |
| Net Income | $ 3,750.00 |
| Add back depreciation | $ 15,000.00 |
| Annual Operating Cash Flow | $ 18,750.00 |
Notes:
1.We add back depreciation because it is a non-cash expense.
Excel sheet:
jeff jeffy answered 2 years agoRelated Solutions
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