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What is the project cash flow

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Your company is considering a new project. The required equipment has a 3-year tax life, after which it will have zero salvage value. The equipment will be depreciated by the straight-line method over 3 years. The cost of this equipment is $60,000. The project will increase the firm's revenue by $10,000 and decrease the operating costs by $7,500 per year over the project's3-year life. The firm falls in 35% tax bracket. The company is financed exclusively by equity, the beta of this company 1.4, the risk free rate is 3% and the market risk premium is 8%.

What is the project's cash flow for year 1?

  • $14,865
  • $18,375
  • $20,000
  • $8,625
  • $21,365

Reference no: EM131165949

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