Answer:
The Incremental cash flow in year 4 is $161,112
Explanation:
According to the given data, the Statement showing accumulated depreciation and book value of asset is as follows:
Year Current year depreciation Accumulated depreciation Book value
0 $200,000
1 $200,000*33.33% $66,660 133,340
2 $200,000*44.45% $88,900 44,440
3 $200,000*14.81% $29,620 14,820
4 $200,000*7.41% $14,820 0
After tax salvage value of equipment at the end of 4th year =(Sale value-Book value)*(1-tax rate)
=[($200,000*50%)-$0]*(1-0.21)
=$79,00
0
Statemet showing Incremental cash flow in year 4
Amout($)
Sales 500,000
Less:Cost 400,000
Less:Depreciation 14,820
Earning before tax 85,180
Less:Tax21% 17,887
Earning after tax 67,292
Add:Depreciation 14,820
Add:after tax salvage value of equipment 79,000
Net cash flow $161,112
The Incremental cash flow in year 4 is $161,112
