Question

SafeElectrical is evaluating a project which will increase sales by $50,000 and costs by $30,000. The project will cost $150,000 and will be depreciated straight-line to a zero book value over the 10-year life of the project. The applicable tax rate is 34 percent. Net working capital is zero. What is the annual cash flow for this project?

$3,300

$17,900

$20,000

$18,300

$28,200

Answer 1

$ 18,300

Sales	(a)	50,000
Cost of Sales	(b)	30,000
Depreciation	(c)	15,000
Profit Before Tax	(d=a-b-c)	5,000
Tax Expense	(e=d*34%)	1,700
Net Income	(f=d-e)	3,300
Depreciation	(c)	15,000
Annual Cash Flow	(g=f+c)	18,300
Working:
Depreciation	=	(Cost - Salvage Value)/Useful Life
	=	(150000-0)/10
	=	15,000