[5] A company purchased some assets to generate additional revenue; the asset de

Question

[5] A company purchased some assets to generate additional revenue; the asset depreciation expenses are shown in the table [you trust your accountant to correctly determine the depreciation]. The company obtained a loan at time 0; this loan amount is shown in the table, as well as the annual loan principal payments. The marginal tax rate for this large corporation is also shown in the table. There were no asset purchases or sales in year 3 or 4 Compute "loan interest payments," "income tax" and "cash flow after taxes, principal, and interest" for years 3 and 4 only. [Time 1 is the end of year 1, time 2 is the end of year 2, etc. The operating cash flow before taxes represents revenues minus labor and materials expenses.] 3. data marginal tax rate Optg. cash ow data 35% data Loan amount 360,000Loan interest Loan principal 15% Income tax rate Cash flow after taxes princ.& int Loan Eqpt interest Taxable Profit time before taxes deprec 1 600,00080,000 2700,00070,000 3800,00060,000 4 900,00050,000 payments payments income after tax 100,000 100,000 80,000 80,000

Explanation / Answer

466,000

Time Oprating Cash Flow Befor Taxes Equipment Depreciation Loan Interest Payment Loan Principal Payament Taxable Income Income Tax Profit After Tax Cash flow After tax ,principal and interest A B C D E = A-B-C F=E *35/100 G=E-F A=C-D-F 1 600,000 80,000 54,000 100,000

466,000

163,100 302,900 282,900 2 700,000 70,000 39,000 100,000 591,000 206,850 384,150 354,150 3 800,000 60,000 24,000 80,000 716,000 250,600 465,400 445,400 4 900,000 50,000 12,000 80,000 838,000 293,300 544,700 514,700

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