Justys Company is considering the purchase of equipment for $90,000. The equipment will generate an annual cash flow before depreciation and taxes of $32,887 for five years. At the end of five years, the equipment will not have a salvage value. The company's rate of return is 8 percent, with a tax rate of 21%. What is the net after-tax cash flow per year?

Question

Quizplus · Accepted Answer

($32,887 x (1 - .21)) + (($90,000 ÷ 5) x .21) = $29,761
(ann. Cash flows x (1 - tax rate)) + ((cost ÷ life) x tax rate)

Justys Company Is Considering the Purchase of Equipment for $90,000