Question

The Blue Lagoon is considering a project with a five-year life. The project requires $110,000 of fixed assets that are classified as five-year property for MACRS. Variable costs equal 71 percent of sales, fixed costs are $9,600, and the tax rate is 35 percent. What is the operating cash flow for year 4 given the following sales estimates and MACRS depreciation allowance percentages?

Answer 1

Answer on Question #37701 – Economics – Finance

$110,000 of fixed assets

VC = 71 percent of sales,

FC = $9,600,

Tax rate = 35 percent.

Year 1 2 3 4 5 sales 28,000 34000 39000 22000 7000

Operating cash flow (OCF) refers to the amount of cash a company generates from the revenues it brings in, excluding costs associated with long-term investment on capital items or investment in securities.

OCF4 = 22,000*(1 - 0.71) - 9,600 = -$3,220 - the operating cash flow for year 4 given the following sales estimates and MACRS depreciation allowance percentages.