TYM Music Corporation is considering the purchase of a new soundboard, used in recording studios to improve sound effects. The new soundboard requires an initial investment of $150,000. A fully depreciated existing soundboard may be disposed of for $40,000 pre-tax. The purchase will have a five-year life and is expected to produce additional revenue of $65,000 per year. Expenses other than depreciation will be $15,000 per year. The new soundboard will be depreciated to zero over five years, but it is expected to be sold for $20,000 and has a 35% tax rate. (i) Calculate the net initial outlay for the new soundboard purchase. (ii) Calculate the operating cash flow for years 1 to 4.(iii) Calculate the total cash flow at the end of year five (operating cash flow for year 5 plus terminal cash flow).
(c) TYM Music Corporation is considering the purchase of a new soundboard, used in
recording studios to improve sound effects. The new soundboard requires an initial
investment of $150,000. A fully
for $40,000 pre-tax. The purchase will have a five-year life and is expected to produce
additional revenue of $65,000 per year. Expenses other than depreciation will be
$15,000 per year. The new soundboard will be depreciated to zero over five years, but
it is expected to be sold for $20,000 and has a 35% tax rate.
(i) Calculate the net initial outlay for the new soundboard purchase.
(ii) Calculate the operating cash flow for years 1 to 4.(iii) Calculate the total cash flow at the end of year five (operating cash
flow for year 5 plus terminal cash flow).
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