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Jansen Company, Inc. is contemplating a new 4 – year expansion project that requires an initial...

Jansen Company, Inc. is contemplating a new 4 – year expansion project that requires an initial fixed asset investment of $3.6 million and initial working capital investment of $300,000. The fixed asset will be depreciated straight-line to zero over its 4-year tax life, after which time it is expected to be sold for $200,000 cash. The project is estimated to generate $3,050,000 in annual sales, with costs of $1,992,000. If the tax rate is 35%, what is the Operating Cash Flow (OCF) for this project for each of the 4 years?

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Answer #1

Calculate operating cash flow :

Annual Sales 3050000
Cost -1992000
Depreciation (3600000-200000/4) -850000
Income before tax 208000
Tax -72800
Net income 135200
Add: Depreciation 850000
Operating cash flow 985200

Operating cash flow for this project for each of 4 years = $985200

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