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A company is considering a new 6-year project that will have annual sales of $222,000 and...

A company is considering a new 6-year project that will have annual sales of $222,000 and costs of $138,000. The project will require fixed assets of $257,000, which will be depreciated on a 5-year MACRS schedule. The annual depreciation percentages are 20.00 percent, 32.00 percent, 19.20 percent, 11.52 percent, 11.52 percent, and 5.76 percent, respectively. The company has a tax rate of 40 percent. What is the operating cash flow for Year 2?

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Answer #1

Operating cash flow = (Sales - Costs)( 1 - Tax rate) + Tax rate(Depreciation)

Operating cash flow = ($222,000 - $138,000)(1 - 0.40) + 0.40(0.3200 * $257,000)

Operating cash flow = $83,296

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