Answered

A project will reduce costs by $62,750 but increase depreciation by $14,812. what is the operating cash flow of this project based on the tax shield approach if the tax rate is 34 percent?

Answer :

reduced cost = $62,750
increased depreciation = $14,812
tax rate = 34% = 34/100 = 0.34
operating cash flow of this project = ?
operating cash flow = (reduced project cost x (1-tax rate)) + (increased amount of depreciation x tax rate)
= ($62,750 x (1-0.34)) + ($14,812 x 0.34)
= $41,415 + $5036.08
= $46,451.08
so, operating cash flow for this project is $46,451 approx.

Other Questions