Whitestone Products is considering a new project whose data are shown below. The required equipment has a 3-year tax life, and the accelerated 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 operating life. What is the project's Year 4 cash flow?

$\begin{array}{l}
\begin{array} { l }
\text { Equipment cost (depreciable basis) } \
\text { Sales revenues, each year }\
\text {Operating costs (excl. deprec.)}\
\text { Tax rate}
\end{array}
\begin{array} { l }
\$ 70,000 \
\$ 42,500 \
\$ 25,000 \
35.00\%
\end{array}
\end{array}$

Question

Whitestone Products is considering a new project whose data are shown below. The required equipment has a 3-year tax life, and the accelerated 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 operating life. What is the project's Year 4 cash flow?

$\begin{array}{l}
\begin{array} { l } 
\text { Equipment cost (depreciable basis) } \
\text { Sales revenues, each year }\
\text {Operating costs (excl. deprec.)}\
\text { Tax rate}
\end{array}
\begin{array} { l } 
\$ 70,000 \
\$ 42,500 \
\$ 25,000 \
35.00\%
\end{array}
\end{array}$

Quizplus · Accepted Answer

$\begin{array}{l}
\begin{array} { l } 
\text {Equipment cost}&\
\text {Depreciation rate Year 4}&\
\text { Sales revenues }& \
\text { - Operating costs (excl. deprec.) }&\
\text { - Depreciation }&\
\text { Operating income (EBTT) }& \
\text { - Taxes }&\text { Rate }=35 \%\
\text { After-tax EBIT }&\
\text { $ + $ Depreciation }&\
\text { Cash flow. Year 1 }&
\end{array}
\begin{array} { l } 
\$ 70,000 \
7.41 \%\
\$ 42,500 \
25,000 \
\$ 5,187 \
\$ 12,313 \
\$ 4,310\
8,003 \
\$ 5,187\
\$ 13,190
\end{array}
\end{array}$

Whitestone Products Is Considering a New Project Whose Data Are