What is the projects operating cash flow for the first year t 1 Income

What is the projects operating cash flow for the

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The company faces a 40% tax rate. What is the project’s operating cash flow for the first year (t = 1)? Income Statement Sales $10,000,000 Less Operating cost $7,000,000 -------------- Operating Income $3,000,000 Less Depreciation $2,000,000 --------------- Earning before Interest and Tax (EBIT) $1,000,000 Operating Cash Flow = (EBIT – Tax) + Depreciation Operating Cash Flow EBIT $1,000,000 Less Tax @ 40% $ 400,000 --------------- $ 600,000 Add Depreciation $2,000,000 --------------- $2,600,000 (11-3) Net Salvage Value Allen Air Lines is now in the terminal year of a project. The equipment originally cost $20 million, of which 80% has been depreciated. Carter can sell the used equipment today to another airline for $5 million, and its tax rate is 40%. What is the equipment’s after-tax net salvage value? Equipment originally cost $20,000,000 Depreciation(80%) $16,000,000 --------------- Book Value $ 4,000,000 Gain on Sale $5,000,000 - $4,000,000 = $1,000,000 Tax on Gain $1,000,000 - $400,000 = $600,000
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Net Salvage Value $5,000,000 - $400,000 = $4,600,000
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