A machine is expected to produce increases in cash operating costs of $200,000 for the next six years.If the company has a 14% after-tax hurdle rate and is subject to a 30% income tax rate,the correct discounted net cash flow would be:

Question

Quizplus · Accepted Answer

1. Calculate the before-tax cash flow:
Increase in cash operating costs per year = $200,000
Before-tax cash flow = -$200,000

2. Calculate the after-tax cash flow:
Income tax rate = 30%
After-tax cash flow = -$200,000 * (1-0.3) = -$140,000

3. Discount the after-tax cash flow:
Discount rate = 14%
Discounted net cash flow = -$140,000 / (1+0.14)^1 + -$140,000 / (1+0.14)^2 + ... + -$140,000 / (1+0.14)^6
= $544,460.34

Therefore, the correct answer is B.

A Machine Is Expected to Produce Increases in Cash Operating