Question
Granada, Inc. plans to purchase new woodworking equipment in order to manufacture a new product. Granada plans to purchase the equipment for a total cost
Granada, Inc. plans to purchase new woodworking equipment in order to manufacture a new product. Granada plans to purchase the equipment for a total cost of $2,000,000. The equipment will be depreciated to zero over 5 years. Granada expects new product sales to be $1,100,000 annually. Granada projects that its variable costs will equal 50% of sales and that it will incur incremental annual fixed costs of $100,000. Granadas tax rate is 40%. What operating cash flow (OCF) should Granada use in year 2 in its capital budgeting analysis if the project is expected to last 5 years?
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