Question

Stockinger Corporation has provided the following information
concerning a capital budgeting project:

Investment required in equipment $ 314,000

Expected life of the project 4

Salvage value of equipment $ 0

Annual sales $ 665,000

Annual cash operating expenses $ 471,000

Working capital requirement $ 30,000

One-time renovation expense in year 3 $ 97,000

The company’s income tax rate is 30% and its after-tax
discount rate is 11%. The working capital would be required
immediately and would be released for use elsewhere at the end of
the project. The company uses straight-line depreciation on all
equipment. Assume cash flows occur at the end of the year except
for the initial investments. The company takes income taxes into
account in its capital budgeting.

The total cash flow net of income taxes in year 3 is:

Answer #1

Cash flow for year 3 | |

Particulars | Amount |

Annual sales | 665,000.00 |

Less: cash expenses | -471000 |

Less: renovation | -97000 |

Less: depreciation | (78,500.00) |

Profit before tax | 18,500.00 |

Less: tax | (5,550.00) |

Profit after tax | 12,950.00 |

Add: depreciation | 78,500.00 |

Cash flow after tax | 91,450.00 |

Cash flow for year 3 is $91,450.

Please rate.

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Garrison 16e updates 05-17-2018, 06-15-2018
Multiple Choice
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