Question

3. the annual cash for a project after depreciation and income tax is $11,375 on the last year of the project. the investment in the project $56,125 estimated life 5 year salvage value $3,000 depreciation charged on straight – line basis the annual cash flows for the last year of project is

Answer 1

The annual cash flow for the project in its last year, before income tax deduction, would be $22,000. This is calculated by adding back the annual depreciation amount to the provided after-tax cash flow figure.

Step-by-step explanation:

The question pertains to calculating the annual cash flows of a project in its last year, taking into account the effects of depreciation and income tax. Given that the investment is $56,125 with an estimated life of 5 years and a salvage value of $3,000, we use the straight-line method to calculate depreciation. The annual depreciation is the difference between the investment and the salvage value divided by the life of the asset. Therefore, the annual depreciation equals ($56,125 - $3,000) / 5 = $10,625 per year.

\Next, we consider the provided annual cash flow after depreciation and income tax, which is $11,375 for the last year. To reach the total annual cash flows before the income tax deduction, we must add back the depreciation. Thus, the total annual cash flow before tax in the last year equals $11,375 + $10,625 = $22,000.