A proposed expansion project is expected to increase sales of JL Ticker's Store by $41,000 and increase cash expenses by $21,000.The project will cost $28,000 and be depreciated using straight-line depreciation to a zero book value over the 4-year life of the project.The store has a marginal tax rate of 30 percent.What is the operating cash flow of the project using the tax shield approach?
A)$5,600
B)$7,800
C)$16,100
D)$13,300
E)$14,600

Question

Quizplus · Accepted Answer

OCF = ($41,000 - $21,000) (1 - 0.30) + ($28,000/4) (0.30) = $16,100

A Proposed Expansion Project Is Expected to Increase Sales of JL