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 $30,500
Operating costs (excl. deprec.) $25,000
Tax rate 35%

A)$11,814
B)$12,436
C)$13,090
D)$13,745
E)$14,432

Question

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 $30,500
Operating costs (excl. deprec.) $25,000
Tax rate 35%

Equipment cost (depreciable basis) $70,000
Sales revenues, each year $30,500
Operating costs (excl. deprec.) $25,000
Tax rate 35%

A)$11,814
B)$12,436
C)$13,090
D)$13,745
E)$14,432

Quizplus · Accepted Answer

In Year 4, the depreciation expense is 7% of $70,000, which is $4,900. The taxable income is $30,500 - $25,000 - $4,900 = $600. The tax is 35% of $600, which is $210. The net income is $600 - $210 = $390. The cash flow is net income plus depreciation: $390 + $4,900 = $5,290. However, the question asks for the project's Year 4 cash flow, which includes the operating cash flow (sales revenues minus operating costs) plus the depreciation tax shield. The operating cash flow is $30,500 - $25,000 = $5,500. The depreciation tax shield is $4,900 * 35% = $1,715. Therefore, the total cash flow is $5,500 + $1,715 = $7,215. However, this does not match any of the given options, indicating a potential error in the problem setup or options.

Company, CSUS Inc