Kaw Inc.had sales of $500,000 and cash operating expenses of $320,000 and depreciation expense of $50,000 for the year just ended.If Kaw's income tax rate is 40%,its net after-tax cash flows amounted to:

Question

Quizplus · Accepted Answer

First, we need to calculate the earnings before interest and taxes (EBIT) by subtracting the cash operating expenses and depreciation expense from the sales:

EBIT = Sales - Cash operating expenses - Depreciation expense 
EBIT = $500,000 - $320,000 - $50,000 
EBIT = $130,000

Then, we need to calculate the net income by applying the income tax rate of 40%:

Net income = EBIT x (1 - income tax rate) 
Net income = $130,000 x (1 - 0.4) 
Net income = $78,000

Finally, we need to add back the depreciation expense (which is a non-cash expense) to the net income to get the net after-tax cash flows:

Net after-tax cash flows = Net income + Depreciation expense 
Net after-tax cash flows = $78,000 + $50,000 
Net after-tax cash flows = $128,000

Therefore, the correct answer is D.

Kaw IncHad Sales of $500,000 and Cash Operating Expenses of $320,000