What is the incremental after-tax cash flow for the first

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Question: ABC Company may buy DNA-testing equipment costing $80,000. This equipment is expected to reduce labor costs of the clinical staff by $25,000 annually, 4% in?ation in savings from labor costs is expected over the last four years. The equipment has a useful life of ?ve years but falls in the three-year property class for cost recovery (depreciation) purposes. A salvage value of $10,000 is expected at the end of useful life. The corporate tax rate for ABC (combined federal and state) is 26%, and its required after-tax rate of return is 12%. Working capital of $30,000 were required in addition to the cost of the equipment and this additional investment were needed over the life of the project (If pro?ts after taxes on the project are negative in any year, the ?rm will offset the loss against other ?rm income for that year.)

What is the incremental after-tax cash flow for the first year of operation?

Reference no: EM133378736

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