Question

Coache Corporation is considering a capital budgeting project that would require an investment of $300,000 in...

Coache Corporation is considering a capital budgeting project that would require an investment of $300,000 in equipment with a 4 year useful life and zero salvage value. The annual incremental sales would be $610,000 and the annual incremental cash operating expenses would be $420,000. In addition, there would be a one-time renovation expense in year 3 of $37,000. The company’s income tax rate is 30%. The company uses straight-line depreciation on all equipment.
The total cash flow net of income taxes in year 3 is:

Homework Answers

Answer #1
Equipment $300,000
Depreciation $300000/4
Depreciation $        75,000
Sales $610,000
Less:
Operating Expenses $420,000
Depreciation $75,000
Renovation Expenses $37,000
Net Profit $78,000
Tax @ 30% $23,400
After Tax Profit $54,600
ADD:
Depreciation $75,000
Total Cash Flow $129,600
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