91Ó°ÊÓ

First, we need to calculate the annual depreciation of the fixed asset. The fixed asset, worth $2.1 million, will be depreciated straight-line to zero over its three-year tax life. Therefore, we can calculate the annual depreciation by dividing the initial fixed asset investment by the tax life (in years): \(Annual \ Depreciation = \frac{Initial \ Fixed \ Asset \ Investment}{Tax \ Life} = \frac{2,100,000}{3}\)

Next, we calculate the taxable income for the project each year by subtracting annual costs and annual depreciation from annual sales: \(Annual \ Taxable \ Income = Annual \ Sales - Annual \ Costs - Annual \ Depreciation\)

Now, we need to calculate the annual taxes paid for the project based on the 35% tax rate: \(Annual \ Taxes \ Paid = Annual \ Taxable \ Income \times Tax \ Rate\)

To find the annual after-tax income for the project, subtract the annual taxes paid from the annual taxable income: \(Annual \ After-Tax \ Income = Annual \ Taxable \ Income - Annual \ Taxes \ Paid\)

Finally, we can calculate the annual operating cash flow (OCF) by adding the annual depreciation back to the annual after-tax income: \(Annual \ Operating \ Cash \ Flow = Annual \ After-Tax \ Income + Annual \ Depreciation\) Now, let's perform the calculations: 1. Calculate Annual Depreciation: \(Annual \ Depreciation = \frac{2,100,000}{3} = 700,000\) 2. Calculate Annual Taxable Income: \(Annual \ Taxable \ Income = 1,900,000 - 850,000 - 700,000 = 350,000\) 3. Calculate Annual Taxes Paid: \(Annual \ Taxes \ Paid = 350,000 \times 0.35 = 122,500\) 4. Calculate Annual After-Tax Income: \(Annual \ After-Tax \ Income = 350,000 - 122,500 = 227,500\) 5. Calculate Annual Operating Cash Flow (OCF): \(Annual \ Operating \ Cash \ Flow = 227,500 + 700,000 = \$ 927,500\) The annual operating cash flow (OCF) for this project is \(\$927,500\).