Question

Colors and More is considering replacing the equipment it uses to produce crayons. The equipment would cost $1.03 million, have a 12-year life, and lower manufacturing costs by an estimated $280,000 a year. The equipment will be depreciated using straight-line depreciation over its expected life to a book value of zero. Ignore bonus depreciation. The required rate of return is 13 percent and the tax rate is 23 percent. What is the annual operating cash flow?

A) $156,947.92

B) $128,150.00

C) $266,441.67

D) $235,341.67

E) $155,616.67

Answer

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