Clemson Software Is Considering a New Project Whose Data Are

question 3

Short Answer

Clemson Software is considering a new project whose data are shown below. The required equipment has a 3-year tax life, after which it will be worthless, and it will be depreciated by the straight-line method over 3 years. Revenues and other operating costs are expected to be constant over the project's 3-year life. What is the project's Year 1 cash flow? $\begin{array} { l r } \text { Equipment cost (depreciable basis) } & \$ 65,000 \\ \text { Straight-line depreciation rate } & 33.333 \% \\ \text { Sales revenues, each year } & \$ 60,000 \\ \text { Operating costs (excl. depreciation) } & \$ 25,000 \\ \text { Tax rate } & 35.0 \% \end{array}$
a. $\$ 28,115$
b. $\$ 28,836$
c. $\$ 29,575$
d. $\$ 30,333$
e. $\$ 31,092$

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