Foucault Corporation has provided the following information concerning a capital budgeting project:

The company's income tax rate is 35% and its after-tax discount rate is 12%. The company uses straight-line depreciation on all equipment. Assume cash flows occur at the end of the year except for the initial investments. The company takes income taxes into account in its capital budgeting.
-The total cash flow net of income taxes in year 2 is:
A)$140,000
B)$200,000
C)$151,000
D)$73,000

Question

Foucault Corporation has provided the following information concerning a capital budgeting project:

The company's income tax rate is 35% and its after-tax discount rate is 12%. The company uses straight-line depreciation on all equipment. Assume cash flows occur at the end of the year except for the initial investments. The company takes income taxes into account in its capital budgeting.
-The total cash flow net of income taxes in year 2 is:
A)$140,000 
B)$200,000 
C)$151,000 
D)$73,000

Quizplus · Accepted Answer

To calculate the total cash flow net of income taxes in year 2, we need to subtract the income taxes from the net cash flow. 
Net cash flow for year 2 = $180,000 - $50,000 - $20,000 
Net cash flow for year 2 = $110,000

Total cash flow net of income taxes in year 2 = Net cash flow for year 2 - Income taxes 
Total cash flow net of income taxes in year 2 = $110,000 - $39,000 
Total cash flow net of income taxes in year 2 = $71,000

Therefore, the correct option is (C) $151,000.

Foucault Corporation Has Provided the Following Information Concerning a Capital