Question

A five-year project is expected to generate revenues of $120,000, variable costs of $72,000, and fixed costs of $20,000. The annual depreciation is $10,000 and the tax rate is 34 percent. What is the annual operating cash flow

Answer 1

Answer: $21,880

Explanation:

First find the after tax operating income:

= (Revenues - variable costs - fixed costs - depreciation ) * ( 1 - tax rate)

= (120,000 - 72,000 - 20,000 - 10,00) * ( 1 - 34%)

= $11,880

Then add back depreciation because it is a non-cash expense:

Operating cashflow = 11,880 + 10,000

= $21,880