Your medium sized company is contemplating a major expansion by adding a new pro
ID: 1097420 • Letter: Y
Question
Your medium sized company is contemplating a major expansion by adding a new product line of plastic body panels for the automotive industry. Currently your company has a total taxable income of S3,000000. The state tax for this income bracket is 10%. The costs and benefits associated with this major expansion are given below: Initial Cost $ 10,000,000 Labor % 600 .000/year Raw Materials $ 1 .000,000/year Annual Revenue $4,400,000/year Project life 10 years Salvage value 0 The equipment for this project can be depreciated using a 7 year MACRS schedule. The annual revenue generated is $ 4,400,000. Federal tax rate is 34% Fill in the cash flow table below. Year Before Tax Cash Flow Deprec. Taxable Income Taxes After Tax Cash Flow O 2 3 4 5 6 7 8 9 10Explanation / Answer
0 1 2 3 4 5 6 7 8 9 10 Initial cost -10000000 Annual revenue 4400000 4400000 4400000 4400000 4400000 4400000 4400000 4400000 4400000 4400000 Labor -600000 -600000 -600000 -600000 -600000 -600000 -600000 -600000 -600000 -600000 Raw material -1000000 -1000000 -1000000 -1000000 -1000000 -1000000 -1000000 -1000000 -1000000 -1000000 Depreciation 0.1429 24.49% 17.49% 12.49% 8.93% 8.92% 8.93% 4.46% Depreciation -1429000 -2449000 -1749000 -1249000 -893000 -892000 -893000 -446000 0 0 Before tax cash flow -10000000 2800000 2800000 2800000 2800000 2800000 2800000 2800000 2800000 2800000 2800000 Depreciation -1429000 -2449000 -1749000 -1249000 -893000 -892000 -893000 -446000 0 0 Taxable inocme 1371000 351000 1051000 1551000 1907000 1908000 1907000 2354000 2800000 2800000 Taxes 466140 119340 357340 527340 648380 648720 648380 800360 952000 952000 After tax cash flow -10000000 2333860 2680660 2442660 2272660 2151620 2151280 2151620 1999640 1848000 1848000
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