You are evaluating the proposed acquisition of a machine that costs $220,000. The machine will result in increased sales of $120,000 per year for 3 years, but costs will increase by $25,000 per year. The machine will be depreciated 3 years MACRS and will be sold for an estimated $50,000 after 3 years. NWC will increase by $75,000 and remain constant for the life of the project. The firms tax rate is 40 percent and the discount rate is 9 percent. Calculate the projects cash flows.

How did they calculate the depreciation and the Taxes?

Year 1 Year 2 Year 3 Sales Expenses Depreciation EBT 120,000 120,000 120,000 (25,000) (25,000) (25,000) (73,326) (97,790) (32,582) 21,674 (2,790) 62,418 (8,670) 1,116 (24,967) 13,004 (1,674) 37,451 73,326 97,790 32,582 Taxes NI Plus: Depreciation OCF 86,330 96,116 70,033