Answer: A.) $250,900
Explanation:
Given the following ;
Working Capital = $10,000
Salvage value = $80,000
Cost of equipment = 800,000
Tax rate = 35%
Number of useful years = 5 years
The formula for cash flow is = EBIT * (1 - tax rate) + Depreciation + Salvage Value + Working Capital released
Depreciation = (cost - Salvage value) ÷ Number of useful years
Depreciation = $(800,000 - 80,000)/5
Depreciation = $720,000÷5 = $144,000
EBIT = Sales - Variable costs - Fixed costs - Depreciation
EBIT = $500,000 - $230,000 - $100,000 - $144,000
EBIT = $26,000
Cash flow = $26,000(1 - 0.35) +$144,000 + $80,000 + $10,000
Cashflow = $250,900