King Nothing is evaluating a new 6-year project that will have annual sales of $410,000 and costs of $284,000. The project will require fixed assets of $510,000, which will be depreciated on a 5-year MACRS schedule. The annual depreciation percentages are 20.00 percent, 32.00 percent, 19.20 percent, 11.52 percent, 11.52 percent, and 5.76 percent, respectively. The company has a tax rate of 35 percent. What is the operating cash flow for Year 3? a. $116,172b. $102,463c. $145,548d. $111,650e. $78,372

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7 September, 17:33

King Nothing is evaluating a new 6-year project that will have annual sales of $410,000 and costs of $284,000. The project will require fixed assets of $510,000, which will be depreciated on a 5-year MACRS schedule. The annual depreciation percentages are 20.00 percent, 32.00 percent, 19.20 percent, 11.52 percent, 11.52 percent, and 5.76 percent, respectively. The company has a tax rate of 35 percent. What is the operating cash flow for Year 3? a. $116,172b. $102,463c. $145,548d. $111,650e. $78,372

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London Branch · Answer 1

Option (a) is correct.

Explanation:

Given that,

Sales = $410,000

Costs = $284,000

Depreciation Expense = $510,000 * 0.1920]

= $97,920

Therefore,

Operating Cash Flow:

= [ (Sales - Variable Costs - Fixed Costs) * (1 - Tax Rate) ] + [Depreciation * Tax Rate]

= [ ($410,000 - 284,000) * (1 - 0.35) ] + [$97,920 * 0.35]

= [$126,000 * 0.65] + [$97,920 * 0.35]

= $81,900 + $34,272

= $1,16,172