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Given the information of a project, answer questions 17 through 22: Cost of equipment=$500,000 Shipping and...

Given the information of a project, answer questions 17 through 22:

  • Cost of equipment=$500,000

  • Shipping and installation = $15,000

  • $20,000 in net working capital required at setup

  • 5-year project life,10-year class life

  • Simplified straight line depreciation

  • Revenues will increase by $200,000 per year

  • Operating costs will rise by $15,000 per year

  • Salvage value after year 5 is $300,000

  • Discount rate = 13%,marginal tax rate = 34%

Question 18 The annual cash flow is...

Incremental revenue 200,000

- Incremental costs 15,000

- Depreciation expense 51,500   

Equals: 133,500

Incremental EBT 133,500

- Additional taxes 45,390

Equals: 88,110

Incremental Net Income 88,110

+ Depreciation reversal 51,500

Equals: 139,610

Annual Cash Flow 139,610

Depreciation Expense = Book Value of the asset ÷ asset life = 515,000 ÷ 10 = 51,500

How did do you get Addition Taxes to be 45,390???????? Please write legibly. Thank you for helping a struggling student.

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Answer #1

Additional taxes = EBT * Tax rate

Incremental EBT = 133500

Tax rate = 34%

Hence additional taxes = 133500*34%

= $45390

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