You estimate that if a new 4D computer graphic display product is laun

You estimate that if a new 4D computer graphic display product is launched by your firm, revenues will increase by $3,053 in the first year and 10% each year for the next 3 years. Expenses will be 50% of revenues.

Depreciation is computed using MACRS for an asset with a 3-year life and a basis of $7,236. The tax rate is 40%. Compute the second years’ annual cash flows.

MACRS Depreciation Rates
Year 3-Year 5-Year
1 33.33% 20.00%
2 44.45% 32.00%

A) $1,542
B) $1,881
C) $2,294
D) $2,386
E) $2,974

ANSWER

C