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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?

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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 ago
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