Taylor United is considering overhauling its equipment to meet increased demand for its product. The cost...

Taylor United is considering overhauling its equipment to meet increased demand for its product. The cost of equipment overhaul is $3.88 million, plus $213,415.00 in installation costs. The firm will straight-line depreciate the equipment to zero using a 5-year recovery period. Additional sales from the overhaul should amount to $207,575.00 per year, and additional operating expenses and other costs (excluding depreciation) will amount to 36.00% of the additional sales. The firm has an ordinary tax rate of 34.00%. What is the operating cash flow for year 1 of this project?

Expert Solution

	Equip ment cost =	$3,880,000
	intellation cost =	$213,415
	Cost capitalised =	$4,093,415
	Life of machine(years) =	5

	Depreciation =	4093415/5
		$818,683

	Additional annual sale	207,575.00
	Coast @36%	74,727.00
	Profit	132,848.00
Less	Depreciation	818,683.00
	Net profit	(685,835.00)
Less	Tax @ 34%	(233,183.90)
	Profit after tax	(452,651.10)
Add	Depreciation	818,683.00
	CAShflow	$ 366,031.90

It is assumed that cost of machine has been capitalised and depreciated over the useful life of 5 years

and loss canbe carried forward to next year

jeff jeffy answered 3 years ago

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