Your company, RIW Inc, is considering a new project whose data are shown below. What is the project’s year 1 cash flow?

Question

Under the new tax law, the equipment used in the project is eligible for 100% bonus depreciation, so it’ll be fully depreciated at t=0. What is the project’s year 1 cash flow?

Sales Revenues - $26,750

Operating Assets - $12,000

Tax Rate - 25.0%

Answer 1

Year 1 Cash Flow = Revenue - Operating Expenses - Taxes = $26,750 - $12,000 - ($26,750 - $12,000) x 25.0% = $26,750 - $12,000 - $3,937.50 = $10,812.50