Share
Explore BrainMass

Operating Cash Flow

A company is considering a new 2 year expansion project which will require an intial fixed asset investment of $6.21 million, the fixed asset will be depreciated straight line to zero over its 2 year tax life after that it will be worthless, this project is estimated to generate $5,520,000 in annual sales, have costs of $2,208,000 and the tax rate is 35% then what is the OCF?

So far i did this *but am not sure about the dep can you please check it over

OCF=(Sales-Costs) x (1+T) + Dep xT
(5,520,000 - 2,208,000) x (1+ .35) +? / .35
3,312,000x1.35x?
and the formula for straight line to o dep= costs of assets - estimated salvage value / assets used for economic life

2,208,000 - 0 / 6,210,000= .355555556 (yet this formula does not look right to me)

the same q with these numbers:
6 year expansion project
initial fixed asset investments of 5.67mill
straight line to 0 depreciation over a 6 year life, after it will be worthless
project is estimated to generate 5,040,000 in annual sales
with costs of 2,016,000
tax rate is 32% , what is the OCF?

Solution Preview

Depreciation = costs of assets - estimated salvage value / assets used for economic life

Cost of assets = 6210000mn$
Salvage value = o
Economic life = 2 years

Depreciation 3105000

OCF=(Sales-Costs) x (1-T) + ...

Solution Summary

This solution explain how to calculate the perating cash flow of the project with the help of the case study.

$2.19