Proof Software is considering a new project whose data are shown below.The equipment that would be used has a 3-year tax life, and the allowed depreciation rates for such property are 33%, 45%, 15%, and 7% for Years 1 through 4.Revenues and other operating costs are expected to be constant over the project's 10-year expected life.What is the Year 1 cash flow?

Equipment cost (depreciable basis)$65,000
Sales revenues, each year$60,000
Operating costs (excl. depreciation)$25,000
Tax rate35.0%

A)$30,258
B)$31,770
C)$33,359
D)$35,027
E)$36,778

Question

Proof Software is considering a new project whose data are shown below.The equipment that would be used has a 3-year tax life, and the allowed depreciation rates for such property are 33%, 45%, 15%, and 7% for Years 1 through 4.Revenues and other operating costs are expected to be constant over the project's 10-year expected life.What is the Year 1 cash flow?

Equipment cost (depreciable basis) $65,000
Sales revenues, each year$60,000
Operating costs (excl. depreciation) $25,000
Tax rate35.0%

Equipment cost (depreciable basis)$65,000
Sales revenues, each year$60,000
Operating costs (excl. depreciation)$25,000
Tax rate35.0%

A)$30,258
B)$31,770
C)$33,359
D)$35,027
E)$36,778

Quizplus · Accepted Answer

The Year 1 cash flow is calculated as follows:Sales revenues: $60,000Operating costs: $25,000Depreciation: $65,000 * 33% = $21,450Taxable income: $60,000 - $25,000 - $21,450 = $13,550Taxes: $13,550 * 35% = $4,743Net income: $13,550 - $4,743 = $8,807Cash flow: $8,807 + $21,450 = $30,258

Proof Software Is Considering a New Project Whose Data Are