Question

Quad Enterprises is considering a new 3-year expansion project that requires an initial fixed asset investment of $3.834 million. The fixed asset will be depreciated straight-line to zero over its 3-year tax life, after which time it will be worthless. The project is estimated to generate $3,408,000 in annual sales, with costs of $1,363,200. If the tax rate is 22 percent, what is the OCF for this project?

Answer 1

OCF is $ 1,876,104
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Please find below the answer
Statementshowing Computations
Paticulars	Amount
Annual Sales	3,408,000.00
Less costs	(1,363,200.00)
Less depreciation = 3834,000/3	(1,278,000.00)
Income before tax	766,800.00
Tax at 22%	(168,696.00)
Income after tax	598,104.00
Add depreciation	1,278,000.00
Cash flows after tax	1,876,104.00