Coache Corporation is considering a capital budgeting project that would require an investment of $340,000 in equipment with a 4 year useful life and zero salvage value. The annual incremental sales would be $740,000 and the annual incremental cash operating expenses would be $460,000. In addition, there would be a one-time renovation expense in year 3 of $41,000. The company's income tax rate is 30%. The company uses straight-line depreciation on all equipment.The total cash flow net of income taxes in year 3 is:

Question

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The total cash flow net of income taxes in year 3 is $192,800. This is calculated as follows:Incremental sales: $740,000Incremental cash operating expenses: $460,000Depreciation: $340,000 / 4 = $85,000Renovation expense: $41,000Income before taxes: $740,000 - $460,000 - $85,000 - $41,000 = $154,000Income taxes: $154,000 * 30% = $46,200Net income: $154,000 - $46,200 = $107,800Depreciation: $85,000Renovation expense: $41,000Total cash flow net of income taxes: $107,800 + $85,000 + $41,000 = $192,800

Coache Corporation Is Considering a Capital Budgeting Project That Would