Rock Haven has a proposed project that will generate sales of 1,680 units annually at a selling price of $22 each. The fixed costs are $12,700 and the variable costs per unit are $5.95. The project requires $28,000 of fixed assets that will be depreciated on a straight-line basis to a zero book value over the 4-year life of the project. The salvage value of the fixed assets is $6,900 and the tax rate is 34 percent. What is the operating cash flow for year four?

Question

Quizplus · Accepted Answer

The operating cash flow for year four is $11,794. This is calculated as follows:Sales revenue: 1,680 units * $22 per unit = $36,960Variable costs: 1,680 units * $5.95 per unit = $10,032Depreciation: $28,000 / 4 years = $7,000Taxable income: $36,960 - $10,032 - $7,000 = $19,928Taxes: $19,928 * 34% = $6,776Operating cash flow: $36,960 - $10,032 - $7,000 - $6,776 + $6,900 = $11,794

Rock Haven Has a Proposed Project That Will Generate Sales