Question

lorida Enterprises, Inc. is considering a new project whose data are shown below. The equipment that will be used has a 3-year class life and will be depreciated by the MACRS depreciation system. Revenues and Cash operating costs are expected to be constant over the project's 10-year life. What is the Year 1 after-tax net operating cash flow? Enter your answer rounded to two decimal places. Do not enter $ or comma in the answer box. For example, if your answer is $12,300.456 then enter as 12300.46 in the answer box.
Equipment cost (depreciable basis)					$75,000
Sales revenues, each year					$65,000
Cash operating costs					$29,000
Tax rate					20.0%

Answer 1

Sales Revenue = $65,000

Cash operating costs = $29,000

Equipment cost = $75,000

3-year MACRS schedule is as follows:

Year	Depreciation rate
1	33.33%
2	44.45%
3	14.81%
4	7.41%

For year 1, depreciation = 33.33%*75000 = $24,997.50

Profit before tax = Sales revenue - Cash operating costs - Depreciation = 65000 - 29000 - 24997.5 = 11002.50

Tax Expense = Tax rate * Prefot before tax = 20%*11002.50 = 2200.50

Profit after tax = Profit before tax - Tax expense = 11002.50 - 2200.50 = 8802.50

The operating cash flows after year 1 = Profit after tax + Depreciation = 8802.50 + 24997.50 = 33799.50