Phone Home,Inc.is considering a new 6-year expansion project that requires an initial fixed asset investment of $5.876 million.The fixed asset will be depreciated straight-line to zero over its 6-year tax life,after which time it will be worthless.The project is estimated to generate $5,328,000 in annual sales,with costs of $2,131,200.The tax rate is 32 percent.What is the annual operating cash flow for this project?
A)$1,894,318
B)$2,211,407
C)$2,487,211
D)$2,663,021
E)$2,848,315

Question

Quizplus · Accepted Answer

OCF = (5,328,000 - $2,131,200)(1 - 0.32) + ($5,876,000/6)(0.32) = $2,487,211