Weston Company is considering a capital project that delivers a $59,500 annual net cash flow before tax. The investment will result in annual depreciation expense of $13,800 over the project's four-year useful life. Assuming a tax rate of 40%, what amount of annual after-tax net cash flow will be provided by this project?

Question

Quizplus · Accepted Answer

Firstly, we need to calculate the annual taxable income before depreciation by subtracting the depreciation from the annual net cash flow before tax:

$59,500 - $13,800 = $45,700

Then, we need to apply the tax rate of 40% to this taxable income:

$45,700 x 0.4 = $18,280

Finally, we subtract the tax expense from the taxable income to get the annual after-tax net cash flow:

$45,700 - $18,280 = $27,420

Therefore, the answer is option C, $41,220.

Weston Company Is Considering a Capital Project That Delivers a $59,500