VARIOUS CASH FLOW COMPUTATIONS
Solve each of the following independent cases:
1. A printing company has decided to purchase a new printing press. Its old press will be sold for $10,000. (It has a book value of $25,000.) The new press will cost $50,000. Assuming that the tax rate is 40 percent, compute the net after tax cash outflow.
2. The maintenance department is purchasing new diagnostic equipment costing $30,000. Additional cash expenses of $2,000 per year are required to operate the equipment. MACRS depreciation will be used (5 year property qualification). Assuming a tax rate of 40 percent, prepare a schedule of after tax cash flows for the first four years.
3. The projected income for a project during its first year of operation is as follows:
|
Cash revenues |
$120,000 |
|
Less: Cash expenses |
(50,000) |
|
Depreciation |
(20,000) |
|
Income before income taxes |
$ 50,000 |
|
Less: Income taxes |
20,000 |
|
Net income |
$ 30,000 |
Compute the following:
a. After tax cash flow
b. After tax cash flow from revenues
c. After tax cash expenses
d. Cash inflow from the shielding effect of depreciation