Kelly\'s Photos Now, Inc. currently has annual cash revenues of $500,000 and ann

Question

Kelly's Photos Now, Inc. currently has annual cash revenues of $500,000 and annual operating expenses of $325,000 including $75,000 in depreciation. The firm's marginal tax rate is 40 percent. New enhanced developing equipment can be purchased for $100,000. The equipment will not increase revenues, but will cut operating expenses by $4,000. The investment will increase depreciation by $1,500. Compute Kelly's annual incremental after-tax net cash flows.

a. $1,800

b. $2,500

c. $5,500

d. $3,000

e. None of the answers provided is correct

Explanation / Answer

Answer is d. $3,000

After tax Saving In Operating cost =4000*(1-.40) 2400 Add Taving on Increased Depreciation 1500*40% 600 Annual incremental after-tax net cash flows 3000

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