19. Fool Proof Software is considering a new project whose data are shown below. The equipment that would be used has a 3-year tax life, and the MACRS 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 life. What is the operating cash flow for Year 1?

Question

19.	Fool Proof Software is considering a new project whose data are shown below.  The equipment that would be used has a 3-year tax life, and the MACRS 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 life.  What is the operating cash flow for Year 1?
						
Equipment cost (depreciable basis)	$65,000	
Sales revenues, each year	$60,000	
Operating costs excl. depr'n	$25,000	
Tax rate	35.0%

Allison · Accepted Answer

Depreciation for the first year = 33% of equipments= 21450

Sales 60000
Less Operating costs 25000
Less Depreciation 21450
Profit before taxes 13550
Less taxes 4743
Profit after taxes 8808
Add Depreciation 21450
Cash flow after taxes 30258