Whitestone Products is considering a new project whose data are shown below. The
ID: 2742522 • Letter: W
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
Answer :
Equipment cost 70,000
Depreciation rate 7.41%
Sales Revenue 42,500
(-) Operating Cost 25,000
(-) Depreciation 5,187
Operating Income
(EBIT) 12,313
(-) Taxes 4,309.55
After Tax EBIT 8,003.45
(+) Depreciation 5,187
Cash Flow for Year 4 13,190.45 or 13,190
Answer is Option C i.e. $ 13,190
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