Gouker Corporation has provided the following information concerning a capital b
ID: 2484919 • Letter: G
Question
Gouker Corporation has provided the following information concerning a capital budgeting project:
After tax discount rate……10%
Tax rate………….35%
Expected life of the project……..4
Investment required in equipment………$200,000
Salvage value of equipment……$0
Annual sales……….$530,000
Annual cash operating expenses……….$390,000
One-time renovation expense in year 3……..$50,000
The company uses straight-line depreciation on all equipment. Assume cash flows occur at the end of the year except for the initial investments. The company takes income taxes into account in its capital budgeting.
The total cash flow net of income taxes in year 2 is:
$90,000
$76,000
$108,500
$140,000
Please show all work
Explanation / Answer
Answer :- The total cash flow net of income taxes in year 2 is $108,500 as follows.
Operating cash flows Cash flow per year$ Revenue 530,000 -Expenses (excluding depreciation) 390,000 Profits before depreciation and taxes 140,000 -depreciation 50,000 Net profits before taxes 90,000 less: taxes 35% 31,500 Net profits after taxes 58,500 +depreciation 50,000 Operating cash inflows 108,500 Depreciation = $200,000/4year =$50,000 per yearRelated Questions
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