You estimate that if a new 4D computer graphic display product is launched by your firm, revenues will increase by $3,053 in the first year and 10% each year for the next 3 years. Expenses will be 50% of revenues. Depreciation is computed using MACRS for an asset with a 3-year life and a basis of $7,236. The tax rate is 40%. Compute the second years' annual cash flows. MACRS Depreciation Rates
$$\begin{array} { | c | c | r | }
\hline \text { Year } & \text { 3-Year } & \text { 5-Year } \
\hline 1 & 33.33 \% & 20.00 \% \
\hline 2 & 44.45 \% & 32.00 \% \
\hline
\end{array}$$

Question

You estimate that if a new 4D computer graphic display product is launched by your firm, revenues will increase by $3,053 in the first year and 10% each year for the next 3 years. Expenses will be 50% of revenues. Depreciation is computed using MACRS for an asset with a 3-year life and a basis of $7,236. The tax rate is 40%. Compute the second years' annual cash flows. MACRS Depreciation Rates
$$\begin{array} { | c | c | r | } 
\hline \text { Year } & \text { 3-Year } & \text { 5-Year } \
\hline 1 & 33.33 \% & 20.00 \% \
\hline 2 & 44.45 \% & 32.00 \% \
\hline
\end{array}$$

Quizplus · Accepted Answer

In the second year, revenue is $3,053 * 1.1 = $3,358.3. Expenses are 50% of revenues, so $1,679.15. Depreciation is 44.45% of $7,236, which is $3,215. Taxable income is $3,358.3 - $1,679.15 - $3,215 = -$1,535.85. Tax is 40% of taxable income, which is $0 (since taxable income is negative). Cash flow is revenue - expenses - tax + depreciation = $3,358.3 - $1,679.15 + $3,215 = $2,294.15, rounded to $2,294.

You Estimate That If a New 4D Computer Graphic Display