Exercise 19.17 Computation of After-Tax Cash Flows Postman Company is considerin

Question

Exercise 19.17 Computation of After-Tax Cash Flows Postman Company is considering two independent projects. One project involves a new product line, and the other involves the acquisition of forklifts for the Materials Handling Department. The projected annual operating revenues and expenses are as follows: Project I (investment in a new product) 270,000 (135,000) (45,000) $ 90,000 (36,000) S 54,000 Revenues Cash expenses Depreciation Income before income taxes Income taxes Net income Project II (Acquisition of Two Forklifts) ash expenses Depreciation $90,000 90,000 equired: ompute the after-tax cash flows of each project. The tax rate is 40 percent and includes federal nd state assessments. Enter cash outflows as negative amounts and cash inflows as positive mounts.

Explanation / Answer

For Project - 1 ........ we can calculate after tax cash inflow

After tax cash in flow = Profit after tax + depreciation = 54000 + 45000 = 99000...........final answer

For Project - 2 .......we can calculate after tax cash out flow

After tax cash out flow = Total expenses including depreciation ( 1 - tax rate ) - Depreciation

= ( 90000 + 90000 ) ( 1 - 0.40 ) - 90000

= 180000 * 0.60 - 90000 = - 18000 ....................final answer

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