Question
A restaurant chain is thinking of opening a new location in Pomona, which would be its brand-new 6-year project. The restaurant chain's manager's research team
A restaurant chain is thinking of opening a new location in Pomona, which would be its brand-new 6-year project. The restaurant chain's manager's research team believes that the new restaurant would be able to bring revenues equal to $495,000 each year. In addition, costs of goods sold such as money paid to suppliers, utility bills, etc. would add up to a total of $335,000 each year. The company would need to spend $595,000 right away to buy all necessary fixed assets such as the new restaurant building, equipment, etc. These fixed assets will be losing their economic value for the duration of the new project according to the five-year property class under the MACRS system:
Year 1: 20.00 percent, Year 2: 32.00 percent, Year 3: 19.20 percent, Year 4: 11.52 percent, Year 5: 11.52 percent, Year 6: 5.76 percent. The restaurant chain faces 35 percent income tax rate rate for its taxable income each year.
Calculate the operating cash flow for the 3rd year of this brand-new restaurant project.
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