Question

H. Cochran, Inc., is considering a new three-year expansion project that requires an initial fixed asset investment of $2,300,000. 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 $2,410,000 in annual sales, with costs of $1,430,000. If the tax rate is 23 percent, what is the OCF for this project? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) OCF

Answer 1

Annual Depreciation = (Cost - Salvage) / Useful Life

= ( $ 2,300,000 - $ 0) / 3

= $ 766,666.6667

Particulars	Amount($)
Sales	24,10,000.00
Less: Cost	14,30,000.00
Less:depreciation	7,66,666.67
EBIT	2,13,333.33
Less:taxes @23%	49,066.67
Net income	1,64,266.67

OCF=Earnings before interest and taxes-Taxes+Depreciation

= $ 213,333.33- $ 49,066.67 + 766,666.6667

= $ 930,933.33

Hence the correct answer is $ 930,933.33