Question

KSB is considering a project that will require $39,000 in net working capital and $68,000 in fixed assets. The project is expected to produce annual sales of $78,500 with associated cash costs of $41,000. The project has a four-year life. The company uses straight-line depreciation to a zero book value over the life of the project. Ignore bonus depreciation. The tax rate is 25 percent. What is the operating cash flow for this project

Answer 1

Answer:

$32,375

Explanation:

The computation of operating cash flow for this project is shown below:-

Annual depreciation  = Cost of fixed assets ÷ Life in years

= $68,000 ÷ 4 years

= $17,000

Operating cash flow

Annual sales                  $78,500

less: Cash cost             ($41,000)

less: Depreciation        ($17,000)

Earnings before tax       $20,500

less: Tax at 25%               ($5,125)

Earnings after tax             $15,375

Add: Depreciation             $17,000

Operating cash flow

every year                       $32,375

Therefore the operating cash flow is $32,375