Shere Khan Corporation is currently evaluating a new project.

Shere Khan Corporation is currently evaluating a new project. Relatively inexpensive equipment with an estimated cost of $300 000 would be purchased, but shipping costs to move the equipment would total $25 000 and installation charges would add another $15 000 to the total equipment costs. Furthermore, the company’s inventories would have to be increased by $20 000 at the time of initial investment. The straight-line depreciation rate is 20% and corporate tax rate is 25%. Calculate the tax effect of depreciation on annual cash flows.

$15 000

$11 250

$18 000

$18 750

$17 000