Ernie's Electrical is evaluating a project which will increase sales by $60,000 and costs by $20,000.The project will cost $125,000 and be depreciated straight-line to a zero book value over the 10 year life of the project.The applicable tax rate is 34%.What is the operating cash flow for this project?

Question

Quizplus · Accepted Answer

Operating cash flow is calculated as (Sales - Costs) * (1 - Tax Rate) + Depreciation. Here, Depreciation = $125,000 / 10 = $12,500. Operating cash flow = ($60,000 - $20,000) * (1 - 0.34) + $12,500 = $30,650.

Ernie's Electrical Is Evaluating a Project Which Will Increase Sales