Proof Software Is Considering a New Project Whose Data Are

question 4

Multiple Choice

Proof Software is considering a new project whose data are shown below.The equipment that would be used has a 3-year tax life, and the allowed depreciation rates for such property are 33%, 45%, 15%, and 7% for Years 1 through 4.Revenues and other operating costs are expected to be constant over the project's 10-year expected life.What is the Year 1 cash flow?

Equipment cost (depreciable basis) $65,000
Sales revenues, each year$60,000
Operating costs (excl. depreciation) $25,000
Tax rate35.0%

• A)$30,258
• B)$31,770
• C)$33,359
• D)$35,027
• E)$36,778

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Definitions:

Supplies

Items used in the operation of a business or part of inventory not yet sold.

Equipment

Tangible property owned by a business used in its operations over an extended period.

Service Company

Business that provides a service.

Law Firm

A business entity formed by one or more lawyers to engage in the practice of law.