Clemson software is considering a new project whose data are shown below. the required equipment has a 3-year tax life, after which it will be worthless, and it will be depreciated by the straight-line method over 3 years. revenues and other operating costs are expected to be constant over the project's 3-year life. what is the project's year 1 cash flow? equipment cost (depreciable basis) $65,000straight-line depreciation rate 33.333%sales revenues, each year $60,000operating costs (excl. depreciation) $25,000tax rate 35.0%a. $28,115b. $28,836c. $29,575d. $30,333e. $31,092
Option (D) is correct.
Sales = 60,000
Depreciation = 65,000 ÷ 3
operating costs = 25,000
Taxable income = Sales - deprecation - operating cost
= $60,000 - $21,667 - $25,000
Net income = Taxable income × (1 - tax rate)
= $13,333 x (1- 0.35)
Cash flow = Net income + deprecation
= $8666.45 + $21,667
A note: we add back depreciation in cash because its a Non-cash expense. That means it depresses taxable income (thus lowers taxes) but the cash from the deprecation expense DOES NOT come out of the company.
i'ts proportional. if the inflation rate is 12% for example, the cpi will be 12% less.
hope it ,