A capital budgeting project is expected to generate earnings before taxes (EBT)of $60,000 per year. Annual depreciation from the project is $30,000 and the firm's tax rate is 40 percent. Determine the project's annual net cash flows.
A)$48,000
B)$66,000
C)$36,000
D)None of the above

Question

Quizplus · Accepted Answer

The project's annual net cash flows can be calculated by adding back the depreciation to the after-tax earnings. First, calculate the after-tax earnings: EBT - Taxes = $60,000 - ($60,000 * 40%) = $60,000 - $24,000 = $36,000. Then, add back the depreciation: $36,000 + $30,000 = $66,000.

A Capital Budgeting Project Is Expected to Generate Earnings Before