Jefferson & Sons is evaluating a project that will increase annual sales by $198,600 and annual cash costs by $94,500. The project will initially require $187,000 in fixed assets that will be depreciated straight-line to a zero book value over the four-year life of the project. No bonus depreciation will be taken. The applicable tax rate is 22 percent. What is the operating cash flow for this project?
A) $97,851
B) $89,920
C) $91,483
D) $86,480
E) $46,620

Question

Quizplus · Accepted Answer

The operating cash flow (OCF) can be calculated using the formula: OCF = (Sales - Costs)(1 - Tax Rate) + (Depreciation * Tax Rate). Here, Sales = $198,600, Costs = $94,500, Tax Rate = 22%, and Depreciation = $187,000 / 4 = $46,750. Plugging these values into the formula gives: OCF = ($198,600 - $94,500)(1 - 0.22) + ($46,750 * 0.22) = $81,318 + $10,165 = $91,483.

Jefferson & Sons Is Evaluating a Project That Will Increase