Quad Enterprises is considering a new 4-year expansion project that requires an initial fixed asset investment...
| Quad Enterprises is considering a new 4-year expansion project that requires an initial fixed asset investment of $3.78 million. The fixed asset will be depreciated straight-line to zero over its 4-year tax life, after which time it will be worthless. The project is estimated to generate $3,360,000 in annual sales, with costs of $1,344,000. |
| If the tax rate is 21 percent, what is the OCF for this
project? |
Homework Answers
Annual depreciation=(Cost-Salvage value)/Useful Life
=(3,780,000/4)=$945000/year
OCF=(Sales-Costs)(1-tax rate)+Tax savings on Annual depreciation
=(3,360,000-1,344,000)(1-0.21)+(0.21*945000)
=$1,791,090.
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