Ernie's Electrical is evaluating a project which will increase annual sales by $50,000 and costs by $30,000.The project has an initial asset cost of $150,000 that will be depreciated straight-line to a zero book value over the 10-year life of the project.Ignore bonus depreciation.The applicable tax rate is 25 percent.What is the annual operating cash flow for this project?
A)$19,250
B)$15,500
C)$21,350
D)$17,900
E)$18,750

Question

Quizplus · Accepted Answer

The annual operating cash flow (OCF) can be calculated using the formula: OCF = (Sales - Costs - Depreciation) * (1 - Tax Rate) + Depreciation. Here, Sales = $50,000, Costs = $30,000, Depreciation = $150,000 / 10 = $15,000, and Tax Rate = 25%.OCF = ($50,000 - $30,000 - $15,000) * (1 - 0.25) + $15,000 = $5,000 * 0.75 + $15,000 = $3,750 + $15,000 = $18,750.

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