Question

Based on the following information, what is the relevant operating cash flow (OCF) associated with the project expected to be in year 2? The project would require an initial investment in equipment of 650,000 dollars that would be depreciated using MACRS where the depreciation rates in years 1, 2, 3, and 4 are 41 percent, 24 percent, 24 percent, and 11 percent, respectively. At the end of the project in 2 years, the equipment would be sold for an expected after-tax cash flow of 11,800 dollars. In year 2 of the project, relevant revenue associated with the project would be 409,600 dollars and relevant costs associated with the project would be 287,100 dollars. The tax rate is 20 percent.

Answer 1

solution: Revenue Less : costs Less; Depreciation=-650000*0.24 Income before tax Less : tax at 20% Net income Add : Depreciation OCF Year 2 409600 -287100 -156000 -33500 6700 -26800 156000 129200