Steel City Fabrication is considering a new project whose data are shown below.

Question

Steel City Fabrication 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 $42,500

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

Tax rate 37.0%

Explanation / Answer

Cashflows = PAt + Dep=12838

Sales revenue 42500 Operating cost 25000 Depreciation 4900 PBT 12600 Tax 4662 PAT 7938 Cashflows 12838

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