QUESTION
Standard Corporation is investing $400,000 of fixed capital in a project that will be depreciated straight-line to zero over its 10-year life. Annual sales are expected to be $240,000, and annual cash operating expenses are expected to be $110,000. An investment of $40,000 in net working capital is required over the projects life. The corporate income tax rate is 30 percent. What is the after-tax operating cash flow expected in year one?
A. $63,000.
B. $92,000.
C. $103,000.
Option C is correct. The annual depreciation charge is $400,000/ 10 = $40,000. The after-tax operating cash flow in Year 1 should be CF = (S C
D) (1 T) + D = (240,000 110,000 40,000) (1 0.30) + 40,000 = 63,000 + 40,000 = $103,000
ANSWER:
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