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Fars's Fashions is considering a project that will require $28,000 in net working capital and $96,000...

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?

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Expert Solution

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

jeff jeffy answered 2 years ago
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