Whitestone Products is considering a new project whose data are shown below. The

Question

Whitestone Products 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 33.33%, 44.45%, 14.81%, and 7.41% 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 $42,500 Operating costs (excl. deprec.) $25,000 Tax rate 35.0% a. $11,904 b. $12,531 c. $13,190 d. $13,850 e. $14,542

Explanation / Answer

Sales $                42,500 Less: Costs $                25,000 Dereciation $                   5,187 70000*0.0741 EBIT $                12,313 Less: Tax @35% $                   4,310 Net income $                   8,003 Add: Depreciation $                   5,187 Operating cash flows for year 4 (OCF) $                13,190

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