Mr. Trail engaged in a current-year transaction generating $50,000 cash but only $40,000 taxable income. If Mr. Trail's marginal tax rate is 40%, compute his after-tax cash flow from the transaction.

Question

Quizplus · Accepted Answer

Mr. Trail's tax on the transaction would be 40% of the $40,000 taxable income, which is $16,000. Subtracting this tax from the $50,000 cash generated gives an after-tax cash flow of $34,000.

Mr Trail Engaged in a Current-Year Transaction Generating $50,000 Cash