Question

Simco is looking at a project that will require $80,000 in net working capital and $200,000 in fixed assets. The project is expected to produce annual sales of $150,000 with associated costs of $100,000. The project has a 10-year life. The company uses straight-line depreciation to a zero book value over the life of the project. The tax rate is 35 percent. What is the annual operating cash flow for this project?

Group of answer choices

$150,000

$46,000

$39,500

$50,000

-$240,500

Answer 1

Depreciation = 200,000 / 10

= 20,000

Statement of Operating Cash Flow
Particulars	Amount
Sales	150,000
Less: Associated Cost	100,000
Operating Income	50,000
Less: Depreciation	20,000
EBIT	30,000
Less: Tax (30,000 * 35%)	10,500
EAT / PAT	19,500
Add: Depreciation	20,000
Operating Cash Flow	39,500

Option C is correct