Question

Holiday Shipping Express is considering a project that will require $28,000 in net working capital and $87,000 in fixed assets. The project is expected to produce annual sales of $75,000 with associated cash costs of $57,000. The project has a 5-year life. The company uses straight-line depreciation to a zero book value over the life of the project. The tax rate is 30 percent. What is the operating cash flow for this project

Answer 1

the operating cash flow is $17,820

Step-by-step explanation:

The computation of the operating cash flow is shown below;

Annual depreciation = $87,000 ÷5

= $17,400

Now

Operating cash flow is

= (sales - cash costs - depreciation) × (1 - tax rate) + depreciation expense

= ($75,000 - $57,000 - $17,400) × (1 - 0.3) + $17,400

= $420 + $17,400

= $17,820

hence, the operating cash flow is $17,820