Math  /  Algebra

QuestionPractice question Company Y is considering buying a machine for $100,000\$ 100,000. This would result in an increase in EBIT of $25,000/year\$ 25,000 / y e a r. It would cost $5,000\$ 5,000 to install the equipment, $5,000\$ 5,000 to train employee. Expected life is 10 years with no salvage value. Assume straight-line depreciation, tax rate 34%34 \%, required rate of return 12%12 \%. The project requires an increase in inventory of $25,000\$ 25,000 and liquidates at the end of year 10. Calculate OCF A. $16,500\$ 16,500 B. $27,500\$ 27,500 B. $18,500\$ 18,500 D. $29,500\$ 29,500

Studdy Solution
Calculate Operating Cash Flow (OCF).
OCF is net income plus depreciation:
OCF=$9,900+$10,000=$19,900 \text{OCF} = \$9,900 + \$10,000 = \$19,900
The correct answer is not listed among the options provided. The calculated Operating Cash Flow (OCF) is:
$19,900 \boxed{\$19,900}

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