Colors and More is considering replacing the equipment it uses to produce crayon
ID: 2778881 • Letter: C
Question
Colors and More is considering replacing the equipment it uses to produce crayons. The equipment would cost $1.37 million, have a 12-year life, and lower manufacturing costs by an estimated $310,000 a year. The equipment will be depreciated over 12 years using straight-line depreciation to a book value of zero. The required rate of return is 15 percent and the tax rate is 35 percent. What is the annual operating cash flow?
A.) $156,947.92
B.) $40,211.24
C.) $266,441.67
D.) $241,458.33
E.) $136,709.48
Explanation / Answer
241458.33 Statement showing computations Particulars Amount Depreciation(1370,000/12) 114,166.67 Savings of Manu Costs 310,000.00 Total savings before tax 195,833.33 Tax Rate @35% 68,541.67 Total savings after tax 127,291.67 Depreciation(1370,000/12) 114,166.67 Total Cash Flows Savings 241,458.33