A company has a tax rate of 40% and a pre-tax net income of $200,000. Other than depreciation expense of $40,000, all other revenues and expenses used to calculate this income are on a cash basis. What is the company's after-tax cash flow?

Question

Quizplus · Accepted Answer

To calculate after-tax cash flow, we need to first calculate the tax expense:

Tax Expense = Tax Rate x (Pre-Tax Net Income - Depreciation Expense)
Tax Expense = 0.4 x ($200,000 - $40,000)
Tax Expense = $64,000

After-tax Net Income = Pre-Tax Net Income - Tax Expense
After-tax Net Income = $200,000 - $64,000
After-tax Net Income = $136,000

Finally, we need to add back the depreciation expense since it is a non-cash expense:

After-tax Cash Flow = After-tax Net Income + Depreciation Expense
After-tax Cash Flow = $136,000 + $40,000
After-tax Cash Flow = $176,000

Therefore, the answer is B, $160,000.

A Company Has a Tax Rate of 40% and a Pre-Tax