Fool Proof Software is considering a new project whose data are shown below. The equipment that would be used has a 3-year tax life, and the allowed depreciation rates for such property are 33%, 45%, 15%, and 7% for Years 1 through 4. Revenues and other operating costs are expected to be constant over the project's 10-year expected life. What is the Year 1 cash flow? Equipment cost (depreciable basis) $65,000Sales revenues, each year $60,000Operating costs (excl. depreciation) $25,000Tax rate 35.0%a. $30,258b. $31,770c. $33,359d. $35,027e. $36,778

Question

Business

Easton Meyer

27 April, 20:19

Fool Proof Software is considering a new project whose data are shown below. The equipment that would be used has a 3-year tax life, and the allowed depreciation rates for such property are 33%, 45%, 15%, and 7% for Years 1 through 4. Revenues and other operating costs are expected to be constant over the project's 10-year expected life. What is the Year 1 cash flow? Equipment cost (depreciable basis) $65,000Sales revenues, each year $60,000Operating costs (excl. depreciation) $25,000Tax rate 35.0%a. $30,258b. $31,770c. $33,359d. $35,027e. $36,778

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Answers (1)

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Jake Mahoney · Answer 1

a. $30,258

Explanation:

Net income = (sales - operation cost - depreciation) * (1 - tax rate)

cash flow = net income + Depreciation

depreciation = 33%*65000

= 21,450

Net income = (60,000 - 25000 - 21450) * (1 - 0.35)

= 8807.5

Cash flow = 8807.5 + 21450

= $30,257.5

therefore, The Year 1 cash flow is $30,257.5