Corporate Finance

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%

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  1. 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

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