Question

2,21,2.?.?.? ?.?, 102 Question 4:03 PM Status Consider a project with an initial investment of $50,000 and a 5 yearfe Project inflows are $25.000 each year and project outflows are $13,000 each year. Depreciation is called on a sighting method. the cash flow in Year 1 is $11,200, what is the tax rate? 30% 20% 40% 255

Answer 1

Ans : Option D, 40 %

Note 1) Earnings before tax (EBT) = Project Inflow - Project outflow - depreciation.

= $ 25,000 - $ 13,000 - ($ 50,000/5)

= $ 12,000 - $ 10,000

EBT = $ 2,000

Note 2) Cash flows = Net Income + Depreciation

$ 11,200 = Net Income + $ 10,000

Net Income = $ 1,200

Note 3) Net Income = EBT - Taxes

$ 1,200 = $ 2,000 - Taxes (From Note 1 and 2 above)

Taxes = $ 800

Tax rate = Taxes / EBT (From Note 1 and 3)

= $ 800 / $ 2,000

= 40 %