Tinney & Smyth Inc. is considering the purchase of a new batch polymer-bonding machine for producing Crazy Rubber, a new childrens toy. The machine will increase EBITDA by $209,769 per year for the next two years. The machines purchase price is $260,000 and the salvage value at the end of two years is $46,800. The machine is in Class 43 with a depreciation rate of 30%. The depreciation expense in Year 1 is $39,000. The tax rate is 35%. What are the operating cash flows for the project in Year 1? (Include the depreciation tax shield.)

Responses

$140,000

$150,000

$135,000

$145,000

For calculating the operating cash flow for Year 1, what formula would we use, and what variables would be used? I'm only confused about the incremental changes in the depreciation, and also whether or not we used the salvage value.