Question:

Fitzgerald Computers 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?

Equipment cost (depreciable basis)	$65,000
Straight-line depreciation rate	33.333%
Sales revenues, each year	$60,000
Operating costs (excl. deprec.)	$25,000
Interest Expense	$4,000
Tax rate	35.0%

	A	$28,115
	B	$28,836
	C	$29,575
	D	$30,333
	E	$31,092