A project will increase revenues by $45,000 but will increase operating expenses

Question

A project will increase revenues by $45,000 but will increase operating expenses by $15,000 and increase depreciation by $5,000. Assume that the tax rate is 30%. The net cash flows is____.

An asset that has a book of 6,500 could be sold for $8,000 at the end of the project life. At the beginning of the project the company invested $3,500 in net working capital. The tax rate is 40%. The net salvage value is___.

Financial analysts focus on ____ when evaluating potential investments.

cash flows

profit

Net cash flows

expenses

cash flows

profit

Net cash flows

expenses

Explanation / Answer

1. the following is the calculation of net cash flow:

2nd question:

capital gain on asset = 8,000 - 6,500 =>1,500.

tax on 1500 @40% =>600

the following table shows the net salvage value:

3rd question:.

financial analysts focus on cashflows when evaluating potential investments.

revenues 45,000 less:operatin expenses (15,000) less: depreciation (5,000) income before tax 25,000 less: tax@30% (7,500) income after tax 17,500 add: depreciation 5,000 net cash flows 22,500

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