Question

Your company is considering a new project. The project requires to purchase an equipment of $100,000. The equipment will be depreciated over the five years period with straight-line depreciation. Revenues and other operating costs are expected to be constant over the project's 10-year expected operating life. The expected revenue is $50,000 per year, and the operating cost (excluding depreciation) is $25,000. The tax rate is 30%. What is the expected cash flow in year 5? (C) $3,500 $17,500 $23,500 $25,000 $37,500

Answer 1

Calculation of Expected Cash flow in Year - 5 ist We Will Calculate Depreciation Depreciation & Cast of Equipment Life of equipment $ 100,000, $ 20,000 - 5 Depreciation far syears was $ 20,000. Now Expected treo Cashflow in years Expected Revenue = $50.000 - Less : ceperating Cost = ($25.000) Earming before depreciation & laxes = $25.000 - Less : Depreciation - ($ 20,000/ Earning befare Cax = $ 5.000 Less-lax (30% of 5000 ) . ($ 1.500) - Earning after lax = $3.5oo Add : Depreciation = $_20,000 Expected Cash flane = $23.500 Expected Cashplaws in Option c. $23.500 is is $23.500 Year 5 Correct