Kurt's Kabinets is looking at a project that will require €80,000 in non-current assets and another €20,000 in net working capital.The project is expected to produce sales of €110,000 with
Associated costs of €70,000.The project has a 4-year life.The company uses straight-line
Depreciation to a zero book value over the life of the project.The tax rate is 35%.What is the
Operating cash ﬂow for this project?

Question

Quizplus · Accepted Answer

Operating cash flow (OCF) is calculated as: OCF = (Sales - Costs) * (1 - Tax Rate) + Depreciation * Tax Rate. Here, Sales = €110,000, Costs = €70,000, Tax Rate = 35%, and Depreciation = €80,000 / 4 = €20,000. OCF = (€110,000 - €70,000) * (1 - 0.35) + €20,000 * 0.35 = €40,000 * 0.65 + €7,000 = €26,000 + €7,000 = €33,000.

Kurt's Kabinets Is Looking at a Project That Will Require