Question

Bennett Co. has a potential new project that is expected to generate annual revenues of $253,100, with variable costs of $140,000, and fixed costs of $58,300. To finance the new project, the company will need to issue new debt that will have an annual interest expense of $19,500. The annual depreciation is $23,200 and the tax rate is 40 percent. What is the annual operating cash flow?

Answer 1

Answer:

Hence, the annual operating cash flow is:  $44860

Explanation:

                                 Year 0    Year 1

Initital investment    

Inflows                                $253,100  

variable costs                       ($140,000)

fixed cost                             (53800)

Depreciton                         ($23,200)

Interest expense                 ($19,500)

Net cash inflows                   $16600 

Tax at 40%                           ($6640)

Net Cashinflows after tax      $9960

Add Depreciation                   $23,200  

Interest net of tax                   $11.700

Operating cashflows              $44860

Hence, the annual operating cash flow is: $44860