Question

Fitzgerald Computers 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
e. $31,092

Answer

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