Question

The Lumber Yard is considering adding a new product line that is expected to increase annual sales by $230,000 and cash expenses by $146,000. The initial investment will require $120,000 in fixed assets that will be depreciated using the 5-year MACRS. The company has a marginal tax rate of 29 percent. What is the project OCF in year 2? (Do not include the dollar sign ($). Round your answer to a whole dollar. (e.g., 4,132) MACRS 5-year property

Year Rate

1 20.00%

2 32.00%

3 19.20%

4 11.52%

5 11.52%

6 5.76%

Answer 1

	Computation of operating cash flow in year 2
i	sales =	230,000
ii	Cash expenses	146,000
iii	Depreciation	38400
	=120,000*32%
iv=i-ii-iii	Profit before tax	45,600
v	Tax rate @ 29%	13224
vi=iv-v	Profit after tax	32,376
vii=vi+iii	Operating cash flow	70,776
	Therefore answer =	70,776