2D1C SKYTOP INDUSTRIES IS ANALYZING A CAPITAL INVESTMENT PROJECT USIN...

309.

CSO: 2D1c

LOS: 2D1c

Skytop Industries is analyzing a capital investment project using discounted cash flow

(DCF) analysis. The new equipment will cost $250,000. Installation and transportation

costs aggregating $25,000 will be capitalized. The appropriate five year depreciation

schedule (20%, 32%, 19%, 14.5%, 14.5%) will be employed with no terminal value

factored into the computations. Annual incremental pre-tax cash inflows are estimated at

$75,000. Skytop’s effective income tax rate is 40%. Assuming the machine is sold at the

end of Year 5 for $30,000, the after-tax cash flow for Year 5 of the project would amount

to

a.

$63,950.

b.

$72,950.

c.

$78,950.

d.

$86,925.