Question

Quad Enterprises is considering a new three-year expansion project that requires an initial fixed asset investment of $2.35 million. The fixed asset will be depreciated straight-line to zero over its three-year tax life, after which time it will be worthless. The project is estimated to generate $1,669,000 in annual sales, with costs of $641,000. If the tax rate is 24 percent, what is the OCF for this project? (Do not round intermediate calculations and enter your answer in dollars, not millions of dollars, e.g., 1,234,567.)

Answer 1

Annual Sales= $ 1,669,000
Cost = $ 641,000
Fixed Cost Investment= $ 2,350,000
Life of Asset = 3 Years
Annual Depreciation = Cost of Fixed Asset/ Life of Asset
Annual Depreciation = $ 2,350,000/ 3
Annual Depreciation = $ 2,350,000/ 3
Annual Depreciation = $ 783,333.33
Rate of tax= 24%
Calculation of OCF for this project
Particular	Amount ( in $)
Annual Sales	16,69,000.00
Less: Cost	6,41,000.00
Less: Annual Depreciation	7,83,333.33
Profit before tax	2,44,666.67
Less : tax @ 24%	58,720.00
Profit after tax	1,85,946.67
Add: Annual Depreciation	7,83,333.33
OCF	9,69,280.00
Therefore answer would be 969,280.