New England Seafood
2.
If stage 1 is undertaken, the Research and Development $200,000 could be written off over 1997-2001.
The R&D costs will have already been incurred before stage one begins therefore only the tax
implications are recorded. The taxes to be written off for the five years is $500,000 times a 40% tax rate
to get $200,000. If they decide not to do stage 1, all expenses would be written off in 1993. There should
be a record of a cash outflow of $1,000,000 in 1993 because that is the opportunity cost of foregoing
stage 1.
Salave value tax is calculated by taking the salvage value minus the current book value times the tax
rate. In this case, the tax rate is 40%. The salvage value tax savings is $144,000.
Stage 1 Cash Flow Statement (in Thousands of Dollars)
Year
Land
R&D exp.
Building
Equipt. Cost
1993
(1,000)
(1,000)
1994
1995
1998
1999
2000
2001
200
200
200
200
200
(500)
(300)
20000
12000
6000
986
1014
(550)
(350)
22000
13200
6240
1598
962
(605)
(405)
24200
14520
6490
1178
2012
(666)
(466)
26620
15972
6749
878
3021
7321
7521
29282
17569
7019
662
4032
406
608
986
1594
385
577
1598
2175
805
1207
1178
2385
1208
1812
878
2690
1613
2419
662
3081
(300)
(350)
(405)
(466)
7521
2225
2000
(400)
3000
144
500
335
16181
(6,000)
(2,000)
(4,000)
(6,000)
(5,000)
(5,000)
Variable Cost
Fixed Cost
Depreciation
Operating
Income
Tax
Net Income
Depreciation
Op Cash
Flow
Cap. Cash
Flow
Land SV
Land SV tax
Bldg SV
Bldg SV tax
Equip SV
Equip SV tax
Net Cash
Flow