Hampton Company plans to incur $230,000 of additional cash operating expenses and produce $410,000 of additional sales revenue if a capital project is implemented. Assuming a 30% tax rate, these two items collectively should appear in a capital budgeting analysis as:

Question

Quizplus · Accepted Answer

The net cash flow from the additional sales revenue and operating expenses, after accounting for taxes, is calculated as follows: Additional sales revenue of $410,000 minus additional operating expenses of $230,000 equals a pre-tax profit of $180,000. With a 30% tax rate, taxes on this profit would be $54,000 ($180,000 * 30%). Therefore, the net inflow after taxes would be $180,000 - $54,000 = $126,000, making the correct answer a $126,000 inflow.

Hampton Company Plans to Incur $230,000 of Additional Cash Operating