A project has annual depreciation of $16,200, costs of $87,100, and sales of $123,000. The applicable tax rate is 34 percent. What is the operating cash flow according to the tax shield approach?

Question

Quizplus · Accepted Answer

Operating cash flow with tax shield approach = (Sales - Costs)(1 - Tax rate) + Depreciation(Tax rate)
= ($123,000 - $87,100)(1 - 0.34) + $16,200(0.34)
= $35,900(0.66) + $5,508
= $23,674 + $5,508
= $29,182
Therefore, the closest option is D, which is $29,202 (rounding up).

A Project Has Annual Depreciation of $16,200, Costs of $87,100