A.

Consider an asset that costs $264,000 and is depreciated straight-line to zero over its 12-year tax life. The asset is to be used in a 5-year project; at the end of the project, the asset can be sold for $33,000.

Required :

If the relevant tax rate is 32 percent, what is the aftertax cash flow from the sale of this asset? (Do not round your intermediate calculations.)

rev: 09_18_2012

$634,932.00

$71,720.00

$68,134.00

$75,306.00

$22,440.00

B.

Summer Tyme, Inc., is considering a new 3-year expansion project that requires an initial fixed asset investment of $4.050 million. The fixed asset will be depreciated straight-line to zero over its 3-year tax life, after which time it will be worthless. The project is estimated to generate $3,600,000 in annual sales, with costs of $1,440,000.

Required:

If the tax rate is 35 percent, what is the OCF for this project?

rev: 09_18_2012

$1,782,675

$1,876,500

$2,160,000

$1,970,325

$526,500