Answer:
A. Project cash flow$2,600,000
C. $2,700,000
$100,000 Increase
Step-by-step explanation:
A. Calculation for the Project cash flows
Sales revenues 9,000,000
Less Operating costs 6,000,000
Depreciation2,000,000
Operating income before taxes$1,000,000
(9,000,000-6,000,000-2,000,000)
Taxes (40%)400,000
(40%*1,000,000)
Operating income after taxes600,000
(1,000,000-400,000)
Add back depreciation2,000,000
Project cash flow $2,600,000
(2,000,000+600,000)
Therefore the Project cash flow will be $2,600,000
C. If the tax rate dropped to 30%, how would that change your answer to Part a
Operating income before taxes $1,000,000
Taxes (30%)300,000
(30%*1,000,000)
Operating income after taxes$700,000
(1,000,000-300,000)
Add back depreciation2,000,000
Project cash flow$2,700,000
(2,000,000+700,000)
Based on the above Calculation the project’s cash flow would increase by the amount of $100,000 ($2,700,000-$2,600,000)