Answer to Question #86342 in Economics for james

Question

b) ABC Ltd is considering the introduction of a new equipment at a cost of sh 90,000. The equipment has a useful life of four years and salvage value of sh 16,500 and installation costs of sh 10,000. Assuming accelerated depreciation of 33.33%, 44.45%, 14.8% and 7.41 and further that the machinery will be housed at an abandoned warehouse with no alternatives use. The facility is expected to generate additional net operating revenue before depreciation and taxes as follows:

Year cash flow
1 sh 35,167
2 sh 36,250
3 sh 55,725
4 sh 32,258

If the tax rate equal 40%, estimate the projects relevant incremental cash flow.