Question

37) You are evaluating a potential purchase of several light-duty trucks. The initial cost of the trucks will be $196,000. The trucks fall in the MACRS 5-year class that allows depreciation of 20% the first year, 32% the second year, 19% the third year, 12% the fourth year, 11% the fifth year, and 6% the sixth year. You expect to sell the trucks for 29,400 at the end of five years. The expected revenue associated with the trucks is $148,000 per year with annual operating costs of $74,000. The firm's marginal tax rate is 20.0%. What is the after-tax operating cash flow for year 4?

$63,904

$40,384

$59,200

$50,480

$23,520

Answer 1

$63,904

Working:

After-tax operating cash flow for year 4:
Revenue				$       1,48,000
operating costs				$         -74,000
Depreciation		(196000*12%)		$         -23,520
Earning before tax		a		$           50,480
Tax Expense		b=a*20.0%		$           10,096
Net Income		c=a-b		$           40,384
Depreciation				$           23,520
Operating Cash flow				$           63,904