Sabrina Company has a tax rate of 30 percent and is considering a capital projec

Question

Sabrina Company has a tax rate of 30 percent and is considering a capital project that will make the following annual contribution to operating income: Cash revenues $100,000 Noncash revenues 40,000 Cash expenses (40,000) Depreciation (45,000) Operating income before income taxes $55,000 Income taxes (16,500) Operating income $38,500 Using the income adjustment procedure, net cash inflows are $38,500 $43,500 $83,500 $100,000

Using the income adjustment procedure, net cash inflows are

$38,500

$43,500

$83,500

$100,000

$38,500

$43,500

$83,500

$100,000

Explanation / Answer

Answer:

Calculation of adjusted net cash inflows;

Cash Revenues = $ 100,000 ( we ignore non cash revenues)

Less: Cash Expense = ($ 40,000)

Cash Operating Income before Tax = $ 60,000

Less: Tax Expense@30% = ($ 16,500)

Cash Net Operating Income = $ 43,500

The correct answer is option B. $ 43,500

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