Your local athletic center is planning a $1.08 million expansion to its current facility.This cost will be depreciated on a straight-line basis over a 20-year period.The expanded area is expected to generate $489,000 in additional annual sales.Variable costs are 46 percent of sales,the annual fixed costs are $129,400,and the tax rate is 34 percent.What is the operating cash flow for the first year of this project?

Question

Quizplus · Accepted Answer

Depreciation expense = $1.08 million / 20 years = $54,000 per year
Total annual fixed cost = $129,400
Contribution margin ratio = 1 - variable cost ratio = 1 - 0.46 = 0.54
Operating income = (489,000 * 0.54) - $129,400 - $54,000 = $107,235.60
Tax = 0.34 * $107,235.60 = $36,421.50
Operating cash flow = $107,235.60 - $36,421.50 + $54,000 = $124,814.10 (rounded to the nearest cent)
Therefore, the answer is C.

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