Logan Hunting has a proposed project that will generate sales of 2,200 units annually at a selling price of $29.95 each.The fixed costs are $15,000 and the variable costs per unit are $6.95.The project requires $42,000 of fixed assets that will be depreciated on a straight-line basis to a zero book value over the four-year life of the project.The salvage value of the fixed assets is $5,500 and the tax rate is 21 percent.What is the operating cash flow for Year 4?

Question

Quizplus · Accepted Answer

The operating cash flow for Year 4 is $30,329. This is calculated as follows:Sales revenue = 2,200 units * $29.95 = $65,890Variable costs = 2,200 units * $6.95 = $15,290Depreciation = $42,000 / 4 = $10,500EBIT = $65,890 - $15,290 - $10,500 = $40,100Taxes = $40,100 * 21% = $8,421Net income = $40,100 - $8,421 = $31,679Depreciation = $10,500Salvage value = $5,500Operating cash flow = $31,679 + $10,500 - $5,500 = $36,679

Logan Hunting Has a Proposed Project That Will Generate Sales