Your company, CSUS Inc., is considering a new project whose data are shown below

Question

Your company, CSUS Inc., 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%, 45%, 15%, and 7% 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?

Equipment cost (depreciable basis) $70,000
Sales revenues, each year $35,500
Operating costs (excl. deprec.) $25,000
Tax rate 35%

PLEASE ANSWER WITH SOLUTION thanks

Explanation / Answer

Answer:

Equipment cost                                                     $70,000

Depreciation rate, Year 4                                          7.0%

Sales revenues                                                       $35,500

? Operating costs (excl. deprec.)                         25,000

? Depreciation                                                          4,900

Operating income (EBIT)                                   $5600

   ? Taxes              Rate = 35%                            1960

After-tax EBIT                                                      $ 7560

   + Depreciation                                                   4900

Cash flow, Year 4                                                 $12460

Thanks

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