Whitestone Products 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 33.33%,44.45%,14.81%,and 7.41% 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 $ 35.0 \% $
A) $11,904
B) $12,531
C) $13,190
D) $13,850
E) $14,542

Question

Whitestone Products 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 33.33%,44.45%,14.81%,and 7.41% 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  $ 35.0 \% $
A) $11,904
B) $12,531
C) $13,190
D) $13,850
E) $14,542

Quizplus · Accepted Answer

$\begin{array}{lr}
\text { Equipment cost } & \$ 70,000 \
\text { Depreciation rate, Year 4 } & 7.41 \% \
\
\text { Sales revenues } & \$ 42,500 \
\text { - Operating costs (excl. deprec.) } & 25,000 \
\text { - Depreciation } & 5,187 \
\hline \text { Operating income (EBIT) } & \$ 12,313 \
\text { - Taxes Rate = 35\% } & 4,310 \
\hline \text { After-tax EBIT } & \$ 8,003 \
\text { + Depreciation } & 5,187 \
\hline \text { Cash flow, Year 4 } & \$ 13,190 \
\hline
\end{array}$

Whitestone Products Is Considering a New Project Whose Data Are $70,000 \$ 70,000 $70,000

Whitestone Products Is Considering a New Project Whose Data Are $\$ 70,000$