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Brisk inc., is considering a new 3-year expansion project that requires an initial fixed asset investment...

Brisk inc., is considering a new 3-year expansion project that requires an initial fixed asset investment of $1,740,757. The fixed asset will be depreciated straight-line to zero over its 3-year tax life, after which time it will be worthless. The project is estimated to generate $2,205,200 in annual sales, with costs of $1,676,180. If the tax rate is 0.33 , what is the OCF for this project?

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Answer #1
Time line 0 1 2 3
Cost of new machine -1740757
=Initial Investment outlay -1740757
Sales 2205200 2205200 2205200
Profits Sales-variable cost 529020 529020 529020
-Depreciation Cost of equipment/no. of years -580252.333 -580252.333 -580252.333
=Pretax cash flows -51232.3333 -51232.3333 -51232.3333
-taxes =(Pretax cash flows)*(1-tax) -34325.6633 -34325.6633 -34325.6633
+Depreciation 580252.3333 580252.3333 580252.3333
= . after tax operating cash flow 545926.67 545926.67 545926.67
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