Jim Bo's currently has annual cash revenues of $240,000 and annual operating expenses of $185,000, including $35,000 in depreciation. The firm's marginal tax rate is 40 percent. A new cutting machine can be purchased for $120,000, which will increase revenues by $50,000 per year while operating expenses would increase to $205,000, including $42,000 in depreciation. Compute Jim Bo's annual incremental after-tax net cash flows.

Question

Quizplus · Accepted Answer

The correct answer is A.The annual incremental after-tax net cash flows is $25,000. This is calculated as follows:Incremental revenues: $50,000Incremental operating expenses: $20,000Incremental depreciation: $7,000Incremental EBIT: $23,000Incremental taxes (40%): $9,200Incremental after-tax net cash flows: $25,000

Jim Bo's Currently Has Annual Cash Revenues of $240,000 and Annual