The Blue Lagoon is considering a project with a five-year life. The project requires $110,000 of fixed assets that are classified as five-year property for MACRS. Variable costs equal 71 percent of sales, fixed costs are $9,600, and the tax rate is 35 percent. What is the operating cash flow for year 4 given the following sales estimates and MACRS depreciation allowance percentages?

Question

Quizplus · Accepted Answer

Year 4 MACRS Depreciation = $110,000 x 0.32 = $35,200

Sales = $48,000

Variable Costs = 0.71 x $48,000 = $34,080

Fixed Costs = $9,600

EBIT = $48,000 - $34,080 - $9,600 = $4,320

Taxes = 0.35 x $4,320 = $1,512

Operating Cash Flow = $4,320 + $35,200 - $1,512 = $37,008

Therefore, the operating cash flow for year 4 is $2,342 (rounded). The answer is D.

The Blue Lagoon Is Considering a Project with a Five-Year