Start-Up Costs to Introduce a New Project Includes $200 000

Start-up costs to introduce a new project includes $200 000 to buy new production equipment and $100 000 to fully install and integrate this equipment.The equipment has an economic life of four years and the company will depreciate it for taxation purposes at 10% prime cost per annum.The equipment is expected to have a salvage value of $55 000 after four years of use.The corporate tax rate is 35%.Calculate the tax effect on salvage cash flows at the final (fourth) year of the project.

A) no tax effect on cash flows
B) decrease of cash flow of $19 250
C) increase of cash flow of $43 750
D) decrease of cash flow of $43 750
E) increase of cash flow of $19 250