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mamaluj [8]
3 years ago
11

Pelican Cove Corporation is trying to decide whether to invest in equipment to manufacture a new product. If the investment proj

ect is accepted, sales revenue will increase by $65,000 per year and materials costs will increase by $16,000 per year. The equipment will cost $140,000 and is depreciable over 10 years using simplified straight line. The firm has a marginal tax rate of 34%. Calculate the firm's annual cash flows resulting from the new project. Group of answer choices
Business
1 answer:
Vedmedyk [2.9K]3 years ago
3 0

Answer:

The firm's annual cash flows resulting from the new project is $58,220

Explanation:

Increase in EBIT               $81,000

(65,000 + 16,000)

Less: Depreciation           <u>$14,000</u>

Profit before tax               $67,000  

Less: Tax at 34%              <u>$22,780</u>

Net income                       $44,220  

Add: Depreciation            <u>$14,000</u>

Operating cash flows     <u>$58,220</u>

Note: Depreciation = $140,000/10 years = $14,000

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