Your company, CSUS Inc., is considering a new project whose data are shown below

Question

Your company, CSUS Inc., is considering a new project whose data are shown below. The required equipment has a 3-year tax life, and the accelerated 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 operating life. What is the project's Year 4 cash flow? Equipment cost (depreciable basis) $70,000 Sales revenues, each year $33,500 Operating costs (excl. depr.) $25,000 Tax rate 35.0%

Explanation / Answer

1

Answer:

Cash flow for the year 4= $ 7,240

Working notes for the above answer:

Particular

Amount $

Sales revenue

33500

Less:

Operating expanses

-25000

Depreciation (70,000*7%)

-4900

Operating income

3600

Less: tax at 35% (3600*35%)

-1260

Add: Depreciation

4900

Cash flow for the year 1

7240

Particular

Amount $

Sales revenue

33500

Less:

Operating expanses

-25000

Depreciation (70,000*7%)

-4900

Operating income

3600

Less: tax at 35% (3600*35%)

-1260

Add: Depreciation

4900

Cash flow for the year 1

7240

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