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Whitestone Products is considering a new project whose data are shown below. The required equipment has...

Whitestone Products is considering a new project whose data are shown below. The required equipment has a 3-year tax life, and the accelerated rates for such property are 33.33%, 44.45%, 14.81%, and 7.41% for Years 1 through 4. Revenues and other operating costs are expected to be constant over the project's 10-year expected operating life. What is the project's Year 4 cash flow?

Equipment cost (depreciable basis) $70,000
Sales revenues, each year $42,500
Operating costs (excl. deprec.) $25,000
Tax rate 35.0%
a. $13,190
b. $14,542
c. $12,531
d. $13,850
e. $11,904
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Answer #1

cash flow = (sales - costs) * (1- tax rate) + depreciation * tax rate

= (42500 - 25000) * (1-0.35) + (70000 * 0.0741) * 0.35

= 13190

hence choose a)

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