Question

A new project is expected to generate $600,000 in revenues, $200,000 in cash operating expenses, and depreciation expense of $100,000 in each year of its 10-year life. The corporation's tax rate is 40%. The project will require an increase in net working capital of $75,000 in year 0 and a decrease in net working capital of $75,000 in year ten. What is the operating cash flow from the project in year one?

Answer 1

Answer:

Explanation:

OCF(yr1) = [(Revenue -Operating expenses-depreciation)*(1-tax)] +depreciation

Note: depreciation is added back because it is not an actual CASH OUTFLOW.

Revenues = 600,000

Operating expenses = 200,000

Depreciation per year = 100,000

Tax = 40% or 0.40 as a decimal

OCF = [(600,000 - 200,000 -100,000)](1-0.40) + 100,000

OCF = (300,000*0.60) +100,000

OCF = 180,000+ 100,000

OCF(Yr1) = $280,000