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? Show work.
Equipment cost (depreciable basis) $80,000
Straight-line depreciation rate 33.333%
Sales revenues, each year $70,000
Operating costs (excl. deprec.) $40,000
Tax rate 35%
a. $29,916.66 b. $28.666.56 c. $27,575.55 d. $28,833.24
