In: Finance
Fars's Fashions is considering a project that will require $28,000 in net working capital and $96,000 in fixed assets. The project is expected to produce annual sales of $75,000 with associated costs of $67,000. The project has 8-year life. The company uses straight-line depreciation to a zero book value over the life of the project. The tax rate is 30 percent. What is the operating cash flow for this project?
Operating cash flow (OCF) each year = income after tax + depreciation
income after tax = EBIT - tax
EBIT = revenue - costs - depreciation
Depreciation each year = cost of fixed assets / project life
Depreciation each year = $96,000 / 8 = $12,000
Operating cash flow (OCF) = $10,600
Operating cash flow (OCF) = $10,600