o open a new store, Linton Tire Company plans to invest $336,000 in equipment ex

Question

o open a new store, Linton Tire Company plans to invest $336,000 in equipment expected to have a six -year useful life and no salvage value. Linton expects the new store to generate annual cash revenues of $319,000 and to incur annual cash operating expenses of $187,000. Linton’s average income tax rate is 40 percent. The company uses straight-line depreciation. Required Determine the expected annual net cash inflow / outflow for each of the first four years after Linton opens the new store. (Negative amounts should be indicated by a minus sign.)

Explanation / Answer

Annual depreciation = 336000 / 6= 56000

Net income = 319000-187000-56000 = 76000

After tax income = 76000(1- .40) = 45600

Net cash inflow For first four years = 45600 + 56000 = 101,600

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