Clemson Software is considering a new project whose data are shown below. The re

Question

Clemson Software is considering a new project whose data are shown below. The required equipment has a 3-year tax life, after which it will be worthless, and it will be depreciated by the straight-line method over 3 years. Revenues and other operating costs are expected to be constant over the project's 3-year life. What is the project's Year 1 cash flow? Do not round the intermediate calculations and round the final answer to the nearest whole number.

Equipment cost (depreciable basis) $100,000 Straight-line depreciation rate 33.333% Sales revenues, each year $60,000 Operating costs (excl. depr.) $25,000 Tax rate 35.0%

Explanation / Answer

Answer: c. $34417

Equipment life, years 3 Equipment cost 100000 Depreciation rate=33.333% 33333 Sales revenues 60000 Basis x rate=depreciation 33333 operating cost (excluding dep) 25000 operating income (EBIT) 1667 Less: taxes @35% 583 EAT 1083 Add: Dep 33333 Cash flow, year 1 34417

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