Fool Proof Software is considering a new project whose data are shown below. The
ID: 2710104 • 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) $59,000 Sales revenues, each year $60,000 Operating costs (excl. deprec.) $25,000 Tax rate 35.0%
a. $26,312 b. $34,590 c. $29,565 d. $28,973 e. $33,112
Please help!! 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) $59,000 Sales revenues, each year $60,000 Operating costs (excl. deprec.) $25,000 Tax rate 35.0%
a. $26,312 b. $34,590 c. $29,565 d. $28,973 e. $33,112
Please help!! 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) $59,000 Sales revenues, each year $60,000 Operating costs (excl. deprec.) $25,000 Tax rate 35.0%
a. $26,312 b. $34,590 c. $29,565 d. $28,973 e. $33,112
Please help!!
Explanation / Answer
Year 1 Cash Flow =( Revenue - Operating cost)(1-Tax) + Tax Saving on Depreciation
= ( 60000-25000) ( 1-0.35) + (59000*33%)(0.35)
= 35000*0.65+ 19470*0.35
=22750+6815 i.e 29565