Given the information of a project, 

• Cost of equipment=$500,000

• Shipping and installation = $15,000

• $20,000 in net working capital required at setup

• 5-year project life,10-year class life

• Simplified straight line depreciation

• Revenues will increase by $200,000 per year

• Operating costs will rise by $15,000 per year

• Salvage value after year 5 is $300,000

• Discount rate = 13%,marginal tax rate = 34%

Question 18 The annual cash flow is...

Incremental revenue 200,000

- Incremental costs 15,000

- Depreciation expense 51,500   

Equals: 133,500

Incremental EBT 133,500

- Additional taxes 45,390

Equals: 88,110

Incremental Net Income 88,110

+ Depreciation reversal 51,500

Equals: 139,610

Annual Cash Flow 139,610

Depreciation Expense = Book Value of the asset ÷ asset life = 515,000 ÷ 10 = 51,500

How did do you get Addition Taxes to be 45,390???????? Please write legibly. Thank you for helping a struggling student.

Answer rating: 100% (QA)

To calculate the additional taxes we need to determine the incremental ta... View the full answer