3. A proposed expansion project is expected to increase sales of JL Ticker's Store by $35,000 and increase cash expenses by $21,000. The project will cost $24,000 and be depreciated using straight-line depreciation to a zero book value over the 4-year life of the project. The store has a marginal tax rate of 30 percent. What is the operating cash flow of the project using the tax shield approach?

Question

Business

Ezra Khan

17 February, 10:29

3. A proposed expansion project is expected to increase sales of JL Ticker's Store by $35,000 and increase cash expenses by $21,000. The project will cost $24,000 and be depreciated using straight-line depreciation to a zero book value over the 4-year life of the project. The store has a marginal tax rate of 30 percent. What is the operating cash flow of the project using the tax shield approach?

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Answers (1)

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Evelin Morrow · Answer 1

The operating cash flow is $11,600

Explanation:

In this question, we are tasked with calculating the operating cash flow of a project using the tax shield approach.

To get this, it is through a mathematical formula. That is we are to use mathematical expression to solve the problem.

Mathematically,

Operating Cash flow = {35000-21000 * (1-.30) }+{ (24000/4) * 0.30}

= 9800+1800

= $11600