Wilson, Inc., is considering a new four-year expansion project that requires an initial fixed asset investment...

Free

70.2K

Verified Solution

Question

Finance

Wilson, Inc., is considering a new four-year expansion projectthat requires an initial fixed asset investment of $1,950,000. Thefixed asset will be depreciated straight-line to zero over itsfour-year tax life, after which time it will be worthless. Theproject is estimated to generate $2,145,000 in annual sales, withcosts of $1,205,000. If the tax rate is 35%, what is the OperatingCash Flow (OCF) for this project ?
1.
$327,430.28
2.
$374,921.15
3.
$2,277,430.38
4.
$2,324.921.15
5.
$781,625.00

Answer & Explanation Solved by verified expert

3.6 Ratings (355 Votes)

5. $781,625.00

Working:

Calculation of operating cash flow:

Sales		$ 21,45,000.00
Cost of sales		-12,05,000.00
Depreciation Expense		-4,87,500.00
Profit Before Tax		4,52,500.00
Tax Expense		-1,58,375.00
Net Income		2,94,125.00
Depreciation Expense		4,87,500.00

Operating Cash flow		$ 7,81,625.00

Working:

Straight line depreciation	=	Cost of Building / Useful Life of project
	=	1950000/4
	=	4,87,500


Tax Expense	=	Profit before tax * Tax Expense
	=	4,52,500	* 35%
	=	1,58,375

Get Answers to Unlimited Questions

Join us to gain access to millions of questions and expert answers. Enjoy exclusive benefits tailored just for you!

Membership Benefits:

Unlimited Question Access with detailed Answers
Zin AI - 3 Million Words
10 Dall-E 3 Images
20 Plot Generations
Conversation with Dialogue Memory
No Ads, Ever!
Access to Our Best AI Platform: Flex AI - Your personal assistant for all your inquiries!

Become a Member

Transcribed Image Text

Wilson, Inc., is considering a new four-year expansion projectthat requires an initial fixed asset investment of $1,950,000. Thefixed asset will be depreciated straight-line to zero over itsfour-year tax life, after which time it will be worthless. Theproject is estimated to generate $2,145,000 in annual sales, withcosts of $1,205,000. If the tax rate is 35%, what is the OperatingCash Flow (OCF) for this project ?1.$327,430.282.$374,921.153.$2,277,430.384.$2,324.921.155.$781,625.00