Question

Taylor United is considering overhau ling its equipment to meet increased demand for its product. The cost of equipment overhaul is $3.80 million, plus $209,461.00 in installation costs. The firm will straight-line depreciate the equipment to zero using a 5-year recovery period. Additional sales from the overhaul should amount to $209,926.00 per year, and #13 unanswered not_submitted additional operating expenses and other costs (excluding depreciation) will amount to 36.00% of the additional sales. The firm has an ordinary tax rate of 39.00%. What is the operating cash flow for year 1 of this project? Submi Answer format: Currency: Round to: 2 decimal places.

Answer 1

first let us know the value of equipment:

$3.80 million + 209,461

=>4,009,461

annual depreciation = 4,009,461 / 5 years

=>801,892.20

additional sales	209,926
less:operational expenses (209,926*36%)	(75,573.36)
less:depreciation	(801,892.20)
income /(loss) before tax	(667,539.56)
tax savings @39% (since we have loss)	260,343.43
income /(loss) after tax	(407,199.13)
add back depreciation	801,892.20
operating cash flow	394,693.07