Fool Proof Software is considering a new project whose data are shown below. The
ID: 2668164 • Letter: F
Question
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) $48,000
Sales revenues, each year $60,000
Operating costs (excl. depr.) $25,000
Tax rate 35.0%
Answer
$29,992
$28,294
$21,786
$33,670
$24,333
Explanation / Answer
Revenue
60,000
Less Operating Expenses
-25,000
35,000
Less tax (35,000*.35)
12,250
22,750
Plus tax savings from depreciation
(48,000*.33*.35)
5,544
Year 1 Cash Flow
28,294
Revenue
60,000
Less Operating Expenses
-25,000
35,000
Less tax (35,000*.35)
12,250
22,750
Plus tax savings from depreciation
(48,000*.33*.35)
5,544
Year 1 Cash Flow
28,294