Problem:
Cochrane, Inc., is considering a new three-year expansion project that requires an initial fixed asset investment of $2,340,000. The fixed asset will be depreciated straight-line to zero over its three-year tax life, after which time it will be worthless. The project is estimated to generate $2,230,000 in annual sales, with costs of $1,220,000.
Required:
Question: If the tax rate is 40 percent, what is the OCF for this project?
Note: Please show how you came up with the solution.