Some new equipment under consideration will cost $1,900,000 and will be used for 7 years. Net working capital will experience a one time increase of $510,000 if the equipment is purchased. The equipment is expected to generate annual revenues of $1,500,000 and annual costs of $480,000. The project falls under the seven-year MACRs class for tax purposes, the tax rate is 20 percent, and the cost of capital is 12 percent. The project's fixed assets can be sold for $456,000 at the end of the project's life.
I need C.) explained. I am confused on how to get some of the numbers from that cash flow.
$84,740
-$74,252 These are taxes owed.
$1,500,000 | Revenues |
-480,000 | Operating Costs |
-169,670 | Depreciation |
$850,330 | Earnings Before Taxes |
-170,066 | Taxes @ 20 percent |
$680,264 | Earnings After Taxes |
+169,670 | Add depreciation |
$849,934 | Operating Cash Flow |
+456,000 | Sale of Equipment |
-74,252 | Tax on Sale of Equipment |
+510,000 | Recover NWC |
$1,741,682 | Net Cash Flow |
I HAVE SHOWN ALL 7 YEARS CASH FLOWS. ALL EXPLAINED WITH NOTES EVERYTHING. ANYWHERE FIND DIFFICULTY, HAPPY TO HELP YOU.
TAXES ARE TO BE PAID, SO IT IS AN OUTFLOW. BUT NOTHING WAS MENTIONED, SO SHOWN VALUE POSITIVE
Some new equipment under consideration will cost $1,900,000 and will be used for 7 years. Net...
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