Thornley Co.is considering a 3-year project with an initial cost of $636,000.The equipment is classified as MACRS 7-year property.The MACRS table values are 0.1429,0.2449,0.1749,0.1249,0.0893,0.0892,0.0893,and 0.0446 for Years 1 to 8,respectively.At the end of the project,the equipment will be sold for an estimated $279,000.The tax rate is 35 percent,and the required return is 17 percent.An extra $23,000 of inventory will be required for the life of the project.Annual sales are estimated at $379,000 with costs of $247,000.What is the total cash flow for Year 3?

Question

Quizplus · Accepted Answer

Depreciation_Year ₃ = $636,000 × 0.1749 = $111,236.40 OCF₃ = ($379,000 − $247,000 − $111,236.40)(1 − 0.35)= $13,496.34 Book Value_Year ₃ = $636,000 × (1 − 0.1429 − 0.2449 − 0.1749)= $278,122.80 After-tax salvage value = $279,000 − 0.35($279,000 − $278,122.80)= $278,692.98 C0₃ = $13,496.34 + $23,000 + $278,692.98 = $315,189.32