A business expects the following revenues, cash expenses, and depreciation charg

Question

A business expects the following revenues, cash expenses, and depreciation charges in the future:

Year                                                                                      1                     2                                             

Revenues                                                                         $98,000        $106,000                             

Cost of goods sold                                                        $38,000        $ 49,000                              

Selling expenses                                                            $11,000        $ 13,000

Other cash operating expenses                                 $10,000        $ 11,000                              

Depreciation                                                                  $ 9,500         $ 13,500                              

This business is in the 20 percent tax bracket. Please compute the after-tax cash flows from operations for this investment for each of the years.

After tax operating cash flow for Year 1_____________ Year 2____________

Explanation / Answer

operating cash flow = (sales - Cost of goods sold-Selling expenses -Other cash operating expenses- Depreciation)*(1-tax) + Depreciation

After tax operating cash flow for Year 1 =( 98,000-38,000 -11,000-10,000-9,500)*(1-20%) + 9,500=$33100

After tax operating cash flow for Year 2 =( 106,000-49,000 -13,000-11,000-13,500)*(1-20%) + 13,500= $29100

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