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Tank Ltd is considering undertaking the purchase of a new piece of equipment that is expected...

Tank Ltd is considering undertaking the purchase of a new piece of equipment that is expected to increase revenue by $12,000 each year for six years. The equipment will increase costs $4,000 each year for six years. It costs $32,000 to purchase today and for tax purposes must be depreciated down to zero over its 8 year useful life using the straight-line method. If Tank is actually forecasting a salvage (for capital budgeting purposes) of $5,000 after 6 years, what is the machine‘s net cash flow (after tax) for year 6? Assume the tax rate is 30%.
13,000 11,800 12,700 12,400
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Answer #1
Annual Operating Cf:
Annual revenues 12000
Less: Annual cost 4000
Less: Depreciation 4000
Before tax Income 4000
Less: Tax @ 30% 1200
After Tax Income 2800
Add: Depreciation 4000
Annual Operating Cf: 6800
Salvage Value 5000
Cashflows of Year-6 11800
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