Fool Proof Software is considering a new project whose data are shown below. The
ID: 2669697 • 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
a)$29,992
b)$28,294
c)$21,786
d)$33,670
e)$24,333
**Please show how to derive answer, thanks!
Explanation / Answer
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