Bagley Inc. reported Sales of $250,000, Cost of Goods Sold of $200,000 (including depreciation expense of $50,000), and Office Expenses of $40,000. The tax rate is 25%. The company had no significant changes in Accounts Receivable, Inventory, Accounts Payable, Prepaid Expenses, or Unearned Revenue.
What is the value of after-tax cash flows?

Question

Quizplus · Accepted Answer

Net Income = (Sales - COGS - Office Expense) × (1 - tax rate)
= ($250,000 - $200,000 - $40,000) × (1 - 0.25) = $7,500
After-tax cash flows = Net Income +/- accrual adjustments (in this case, just adding back depreciation expense) = $7,500 + $50,000 = $57,500