The Corner Shop is considering a new four-year expansion project that requires an initial fixed asset investment of $210,000.The fixed asset will be depreciated straight-line to zero over its four-year life, after which time it will be worthless.The project is estimated to generate $48,000 in annual sales, with costs of $31,000.If the tax rate is 34 percent, what is the OCF for this project?

Question

Quizplus · Accepted Answer

OCF = EBIT * (1 - Tax rate) + DepreciationEBIT = Sales - Costs = $48,000 - $31,000 = $17,000Depreciation = Fixed asset investment / Life = $210,000 / 4 = $52,500OCF = $17,000 * (1 - 0.34) + $52,500 = $29,070

The Corner Shop Is Considering a New Four-Year Expansion Project