Question - Prudencio Corporation has provided the following information concerning a capital budgeting project:
|
After-tax discount rate
|
13%
|
|
Tax rate
|
30%
|
|
Expected life of the project
|
4
|
|
Investment required in equipment
|
$160,000
|
|
Salvage value of equipment
|
$0
|
|
Annual sales
|
$400,000
|
|
Annual cash operating expenses
|
$290,000
|
|
One-time renovation expense in year 3
|
$40,000
|
The company uses straight-line depreciation on all equipment. Assume cash flows occur at the end of the year except for the initial investments. The company takes income taxes into account in its capital budgeting.
Calculate the total cash flow net of income taxes in year 3?
$70,000
$49,000
$89,000
$61,000