Valley Club is considering adding a miniature golf course to its facility. The course would cost...

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Valley Club is considering adding a miniature golf course to itsfacility. The course would cost $44,000, would be depreciated on astraight-line basis over its 4-year life, and would have a zerosalvage value. The estimated income from the golfing fees would be$33,000 a year with $9,000 of that amount being variable cost. Thefixed cost would be $6,200. The project will require $3,000 of networking capital, which is recoverable at the end of the project.What is the operating cash flow of this project for year 1 to year4 at a tax rate of 20 percent?
a) $13,992
b) $15,100
c) $14,154
d) $16,440

Answer & Explanation Solved by verified expert

3.6 Ratings (570 Votes)

d) $16,440

Working;

Revenue		$ 33,000
Variable cost		-9,000
Contribution Margin		24,000
Fixed cost		-6,200
Depreciation		-11,000
Earning before tax		6,800
Tax Expense		-1,360
Net Income		5,440
Depreciation		11,000

Operating cash flow		$ 16,440

Working:

Straight line depreciation	=	(Cost - Salvage Value)/Useful life
	=	(44000-0)/4
	=	$ 11,000

Tax expense	=	Profit before tax * Tax rate
	=	6,800	* 20%
	=	1,360

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Transcribed Image Text

Valley Club is considering adding a miniature golf course to itsfacility. The course would cost $44,000, would be depreciated on astraight-line basis over its 4-year life, and would have a zerosalvage value. The estimated income from the golfing fees would be$33,000 a year with $9,000 of that amount being variable cost. Thefixed cost would be $6,200. The project will require $3,000 of networking capital, which is recoverable at the end of the project.What is the operating cash flow of this project for year 1 to year4 at a tax rate of 20 percent?a) $13,992b) $15,100c) $14,154d) $16,440