Fitzgerald Computers is considering a new project whose data are shown below. Th

Question

Fitzgerald Computers 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? Equipment cost (depreciable basis) Straight-line depreciation rate Sales revenues, each year Operating costs (excl. deprec.) Tax rate $65,000 33.333% S60,000 $25,000 35.0% $28,115 $28,836 $29,575 $30,333 $31,092

Explanation / Answer

1)

Sales $      60,000 Less: Costs $      25,000 Depreciation $      21,667 65000/3 EBIT $      13,333 Less: Tax payable @ 35% $        4,667 Net income $        8,667 Add: Depreciation $      21,667 Operating cash flows - 1 $      30,333

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