Jefferson & Sons is evaluating a project that will increase annual sales by $450,000 and annual...
Jefferson & Sons is evaluating a project that will increase annual sales by $450,000 and annual costs by $270,000. The project will initially require $130,000 in fixed assets that will be depreciated straight-line to a zero book value over the 5 year life of the project. The applicable tax rate is 40 percent. The annual operating cash flow for this project is $___. Round it to a whole dollar.
Homework Answers
Annual depreciation=(Cost-Salvage value)/Useful Life
=(130,000/5)=$26,000
Annual operating cash flow=(Sale-Costs)(1-tax rate)+Tax savings on Annual depreciation
=(450,000-270,000)(1-0.4)+(0.4*26,000)
=$118400
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