Skyline Industries is analyzing a capital investment project. The new equipment is required by the project and will cost $350,000 with $25,000 installation and transportation costs. A five-year MACRS depreciation schedule (20%, 32%, 19.2%, 11.52%, 11.52%, 5.76%) with the half-year convention will be employed. Existing equipment, with a book value of $200,000 and an estimated market value of $100,000, will be sold immediately after installation of the new equipment. Annual incremental pre-tax cash inflows are estimated at $175,000. Skyline's effective income tax rate is 40%. After-tax operating cash flow for the first year of the project would amount to
a. $105,000.
b. $133,000.
c. $135,000.
d. $175,000.
Can anyone tell me how to calculate the depreciation tax shield in this one? Ans is C
------------------------------
Riya Samuel
Student
MUMBAI
India
------------------------------