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 $33,500 Operating costs (excl. depr.) $25,000 Tax rate 35.0%

Explanation / Answer

equipment cost = 70000

MCAR at 7% = 4900

sales rev = 33500

operating cost = 25000

EBITDA = 8500

depreciation = 4900

EBIT = 3600

tax = 3600 * 0.35 = 1260

deprciation = 4900

OCF = (3600-1260) + 4900

= 7240

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