Question

Volpey 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) $65,000
Straight-line depreciation rate 33.333%
Sales revenues, each year $60,000
Operating costs (excl. deprec.) $25,000
Tax rate 35.0%
a. $28,115
b. $28,836
c. $29,575
d. $30,333

Please show me work on how you answered it thank you.

Answer 1

Answer: d. $30,333

Explanation:

Proejct's Year 1 Cash flow
Sales		60,000
Less: Operating costs		25,000
Less: Depreciation	(65,000/3)	21,667
Operating income		13,333
Less: Tax @35%	(13,333*35%)	4,667
Net income		8,666
Add: Depreciation		21,667
Year 1 Cash Flows		30,333