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19 October, 17:30

A project will reduce costs by $62,750 but increase depreciation by $14,812. what is the operating cash flow of this project based on the tax shield approach if the tax rate is 34 percent?

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  1. 19 October, 18:58
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    Reduced cost = $62,750

    increased depreciation = $14,812

    tax rate = 34% = 34/100 = 0.34

    operating cash flow of this project = ?

    operating cash flow = (reduced project cost x (1-tax rate)) + (increased amount of depreciation x tax rate)

    = ($62,750 x (1-0.34)) + ($14,812 x 0.34)

    = $41,415 + $5036.08

    = $46,451.08

    so, operating cash flow for this project is $46,451 approx.
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