Winter Tyme, Inc., is considering building a plant to produce snow tires. The project would last 5 years and requires an initial fixed asset investment of $1.134 million. The Fixed asset will be depreciated straight-line to zero over its 5-year tax life, after which time it will be worthless. Winter Tyme paid $75,000 for a market analysis which indicates the project will generate $1,008,000 in annual sales, with costs of $403,200. Required: If the tax rate is 34 percent, what is the OCF for this project?
Winter Tyme, Inc., is considering building a plant to produce snow tires. The project would last 5 years and requires an initial fixed asset investment of $1.134 million. The Fixed asset will be depreciated straight-line to zero over its 5-year tax life, after which time it will be worthless. Winter Tyme paid $75,000 for a market analysis which indicates the project will generate $1,008,000 in annual sales, with costs of $403,200. Required: If the tax rate is 34 percent, what is the OCF for this project?
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Transcribed Image Text:Winter Tyme, Inc., is considering building a plant to produce snow tires. The project
would last 5 years and requires an initial fixed asset investment of $1.134 million. The
fixed asset will be depreciated straight-line to zero over its 5-year tax life, after which
time it will be worthless. Winter Tyme paid $75,000 for a market analysis which indicates
the project will generate $1,008,000 in annual sales, with costs of $403,200.
Required:
If the tax rate is 34 percent, what is the OCF for this project?
Multiple Choice
4
O
O
$500,094
$476,280
$249,480
$604,800
$452,466
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