Kurt's Cabinets is looking at a project that will require $80,000 in fixed assets and another $20,000 in net working capital.The project is expected to produce annual sales of $110,000 with associated costs of $70,000.The project has a life of 4 years.The company ignores bonus depreciation and instead uses straight-line depreciation to a zero book value over the life of the project.The tax rate is 21 percent.What is the annual operating cash flow for this project?
A)$31,600
B)$43,200
C)$27,000
D)$35,800
E)$40,000

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, Depreciation = $80,000 / 4 = $20,000. So, OCF = ($110,000 - $70,000 - $20,000) * (1 - 0.21) + $20,000 = $20,000 * 0.79 + $20,000 = $35,800.

Kurt's Cabinets Is Looking at a Project That Will Require