Your new employer,Freeman 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 33.33%,44.45%,14.81%,and 7.41% 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? $$\begin{array} { l l }
\text { Equipment cost (depreciable basis) } & \$ 65,000 \
\text { Sales revenues, each year } & \$ 60,000 \
\text { Operating costs (excl. deprec.) } & \$ 25,000 \
\text { Tax rate } & 35.0 \%
\end{array}$$
A)$30,333
B)$31,849
C)$33,442
D)$35,114
E)$36,869

Question

Your new employer,Freeman 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 33.33%,44.45%,14.81%,and 7.41% 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? $$\begin{array} { l l } 
\text { Equipment cost (depreciable basis) } & \$ 65,000 \
\text { Sales revenues, each year } & \$ 60,000 \
\text { Operating costs (excl. deprec.) } & \$ 25,000 \
\text { Tax rate } & 35.0 \%
\end{array}$$
A)$30,333
B)$31,849
C)$33,442
D)$35,114
E)$36,869

Quizplus · Accepted Answer

Year 1 Cash Flow = 
= (Sales Revenue - Operating Cost) x (1 - Tax Rate) + Depreciation Tax Shield
= (60,000 - 25,000) x (1 - 0.35) + (65,000 x 0.3333 x 0.35)
= $30,333.

Therefore, the answer is A.

Your New Employer,Freeman Software,is Considering a New Project Whose Data