According to the financial projections for the following 4-year CF pro-forma, calculate the stream of CFs for
Question:
According to the financial projections for the following 4-year CF pro-forma, calculate the stream of CFs for this project. (Overhead costs shown below). Please show total overhead costs, before-tax cash flows and final after-tax cash flows.
Important Factors: Due to the technology investment, sales are expected to increase on an incremental basis of $10,000 increase every year for the next four years. All of the overhead costs (except for new equipment) are estimated on an incremental basis of $1,500 increase every year for the next 4 years. The corporate tax rate at 40.00%. Deprecation of new technology is estimated on a straight-line method, which is set at $1,000 for the next 4 years.
New technology will cost $57,000, in addition to the cost of the new the old technology can be sold for $10,000 in the market with a book value of $8,000. Hence after-tax salvage value from the replaced assets is established based on the difference between the market and book value of the old asset along with the effect of tax. Suppose that the new technology will not cause an increase in working capital.
Format to show work:
Year 1 Year 2 Year 3 Year 4
Sales Projections: $50,000
overhead costs
Staffing (16000)
shipping (4000)
maintenance (2000)
design (3000)
New Equipment (57,000) n/a n/a n/a
less: depreciation
Total overhead costs:
after-tax salvage value $ n/a n/a n/a
before tax cash flows: $ $ $ $
tax at 40.00% ($)
add: depreciation $ $ $ $
After-tax cash flows: ($) $ $ $
Income Tax Fundamentals 2013
ISBN: 9781285586618
31st Edition
Authors: Gerald E. Whittenburg, Martha Altus Buller, Steven L Gill