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A gym owner is considering opening a location on the other side of town. The new...

A gym owner is considering opening a location on the other side of town. The new facility will cost $1.39 million and will be depreciated on a straight-line basis over a 20-year period. The new gym is expected to generate $543,000 in annual sales. Variable costs are 53 percent of sales, the annual fixed costs are $87,300, and the tax rate is 35 percent. What is the operating cash flow?

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Answer #1

Operating cash flow = (Sales - Variable cosrs - Fixed costs)(1 - Tax rate) + Tax rate(Depreciation)

Operating cash flow = [$543,000 − (0.53 * $543,000) − $87,300](1 − 0.35) + 0.35($1,390,000/20)

Operating cash flow = $133,466.50

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