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Kurt's Cabinets is looking at a project that will require $80,000 in fixed assets and another $20,000 in net working capital. The project is expected to produce annual sales of $110,000 with associated costs of $70,000. The project has a life of 4 years. The company ignores bonus depreciation and instead uses straight-line depreciation to a zero book value over the life of the project. The tax rate is 21 percent. What is the annual operating cash flow for this project

Answer :

jepessoa

Answer:

$33,000

Explanation:

Kurt's cabinets annual operating cash flow = [(total revenue - total costs) x (1 - tax rate)] + (depreciation expense x tax rate)

= [($110,000 -$70,000) x (1 - 35%)] + [($80,000 / 4) x 35%]

= ($40,000 x 65%) x ($20,000 x 35%)

= $26,000 + $7,000 = $33,000

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