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 allowed depreciation 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 life. What is the Year 1 cash flow?
A) $30,258
B) $31,770
C) $33,359
D) $35,027
E) $36,778

Question

Quizplus · Accepted Answer

The Year 1 cash flow is calculated as follows:Revenue: $100,000Operating costs: $60,000Depreciation: $33,000Tax savings (35% * $33,000): $11,550Year 1 cash flow: $100,000 - $60,000 - $33,000 + $11,550 = $30,258

Fool Proof Software Is Considering a New Project Whose Data