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 ratesfor 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 expectedlife. 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 1

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

Answer 2

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 alloweddepreciation rates for such property are 33%, 45%, 15%, and 7% for Years 1 through 4. Revenues and other operating costs are expected to be constantover 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