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You are considering the incremental cashflows for project year one. As a result of your new...

You are considering the incremental cashflows for project year one. As a result of your new project, You expect that sales will increase $10000 in year one. Your operating expenses will increase by $3000 as a result of this project. Depreciation of equipment for this project will be $2000 in year one.

You also took out a loan to finance the new machine and you owe a $100 interest payment.  

The applicable tax rate is 25%.  

What is the EBIT for year one?

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Answer #1

EBIT = Sales - Operating Expenses - Depreciation

= $10,000 - $3,000 - $2,000 = $5,000

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