Project:
-invest 300k$
-Generate 200k$ net pre-tax operating cash flow for the next 3 years
-
equipment will be scrapped after 3 years
-
using MACRS
year 1 = 33%
year 2 = 45%
year 3 = 15%
year 4 = 7%
-
tax rate = 40% and paid in the years they are accrued
-
cost of capital = 8%
Calculate the net cash flow in the 3rd year resulting from the equipment.
A - 122 800
B - 138 000
C - 146 400
Answer is:
200 x 0.6 + 300 x 0.15 x 0.4 + 300k x 0.07 x 0.4 = 146 400
I do not understand why there is the last part at 7% in the result