The tax rate is 35 What is the operating cash flow for this project D 33000 Tax

# The tax rate is 35 what is the operating cash flow

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depreciation to a zero book value over the life of the project. The tax rate is 35%. What is the operating cash flow for this project? D. \$33,000 Tax = .35 [\$110,000 - 70,000 - (\$80,000 4)] = \$7,000; OCF = \$110,000 - \$70,000 - \$7,000 = \$33,000 8-7 Chapter 08 - Making Capital Investment Decisions 50. Peter's Boats has sales of \$760,000 and a profit margin of 5%. The annual depreciation expense is \$80,000. What is the amount of the operating cash flow if the company has no long-term debt? C. \$118,000 OCF = (\$760,000 .05) + \$80,000 = \$118,000 51. Le Place has sales of \$440,000, depreciation of \$32,000, and net working capital of \$56,000. The firm has a tax rate of 34% and a profit margin of 5%. The firm has no interest expense. What is the amount of the operating cash flow? C. \$54,000 OCF = (\$440,000 .05) + \$32,000 = \$54,000 OCF – TOP DOWN APPROACH 52. Ben's Border Café is considering a project which will produce sales of \$16,000 and increase cash expenses by \$10,000. If the project is implemented, taxes will increase from \$23,000 to \$24,500 and depreciation will increase from \$4,000 to \$5,500. What is the amount of the operating cash flow using the top-down approach? B. \$4,500 OCF = \$16,000 - \$10,000 - (\$24,500 - \$23,000) = \$4,500 53. Ronnie's Coffee House is considering a project that will produce sales of \$7,000 and increase cash expenses by \$2,500. If the project is implemented, taxes will increase by \$1,400. The additional depreciation expense will be \$1,000. An initial cash outlay of \$3,000 is required for net working capital. What is the amount of the operating cash flow using the top- down approach? D. \$3,100 OCF = \$7,000 - \$2,500 - \$1,400 = \$3,100 OCF – TAX SHIELF APPROACH 54. A project will increase sales by \$60,000 and cash expenses by \$51,000. The project will cost \$40,000 and be depreciated using straight-line depreciation to a zero book value over the 4-year life of the project. The company has a marginal tax rate of 35%. What is the operating cash flow of the project using the tax shield approach? C. \$9,350 OCF = [(\$60,000 - \$51,000) (1 -.35)] + [(\$40,000 4) .35] = \$9,350 55. A project will increase sales by \$140,000 and cash expenses by \$95,000. The project will cost \$200,000 and be depreciated using the straight-line method to a zero book value over the 5-year life of the project. The company has a marginal tax rate of 34%. What is the yearly value of the depreciation tax shield? B. \$13,600 Depreciation tax shield = (\$200,000 5) .34 = \$13,600 8-8 Chapter 08 - Making Capital Investment Decisions MACRS 56. Sun Lee's Furniture just purchased some fixed assets classified as 5-year property for MACRS. The assets cost \$24,000. What is the amount of the depreciation expense for the second year? E. \$7,680 Depreciation for year 2 = \$24,000 .3200 = \$7,680 57. You just purchased some equipment that is classified as 5-year property for MACRS. The equipment cost \$67,600. What will the book value of this equipment be at the end of three years should you decide to resell the equipment at that point in time? A. \$19,468.80 Book value at the end of year 3 = \$67,600 - [\$67,600 (.20 + .32 + .192)] = 58. LiCheng's Enterprises just purchased some fixed assets that are classified as 3-year property for MACRS. The assets cost \$2,900. What is the amount of the depreciation expense for year 4?  #### You've reached the end of your free preview.

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