A project will reduce costs by $34,000 but increase depreciation by $16,500. What is the operating cash flow of this project based on the tax shield approach if the tax rate is 35 percent?

Question

Quizplus · Accepted Answer

The operating cash flow (OCF) using the tax shield approach is calculated as: OCF = (Cost savings - Depreciation) * (1 - Tax rate) + Depreciation. Here, OCF = ($34,000 - $16,500) * (1 - 0.35) + $16,500 = $27,875.

A Project Will Reduce Costs by $34,000 but Increase Depreciation