Question

XYZ Company is considering whether a project requiring the purchase of new equipment is worth investing. The cost of a new machine is $340,000 including shipping and installation. The project will increase annual revenues by $400,000 and annual costs by $100,000. The machine will be depreciated via straight-line depreciation for three years to a salvage value of $40,000. If the firm does this project, $30,000 in net working capital will be required. What is the annual cash flow of this project in the second year if the tax rate is 40%? Round to the nearest penny. Do not include a dollar sign in your answer.

Answer #1

Particulars | Amount |

Sales | $ 400,000 |

Costs | $ (100,000) |

Depreciation | $ (100,000) |

Income before tax | $ 200,000 |

Less: taxes | $ (80,000) |

Net income | $ 120,000 |

Add: depreciation | $ 100,000 |

Operating cash flow | $ 220,000 |

Answer is:

220,000

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depreciation for three years to a salvage value of $40,000. If the
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