Use the table for the question(s)below.
AOS Industries Statement of Cash Flows for 2015

-Consider the above statement of cash flows.In 2015,AOS Industries had contemplated buying a new warehouse for $2 million,the cost of which would be depreciated over 10 years.If AOS Industries has a tax rate of 25%,what would be the impact on the amount of cash held by AOS at the the end of the 2015?
A)It would have $2,00,000 less cash at the end of 2015.
B)It would have $1,950,000 less cash at the end of 2015.
C)It would have $150,000 less cash at the end of 2015.
D)It would have an additional $50,000 in cash at the end of 2015.
E)It would have $1,800,000 less cash at the end of 2015.

Question

Use the table for the question(s)below.
AOS Industries Statement of Cash Flows for 2015
 
-Consider the above statement of cash flows.In 2015,AOS Industries had contemplated buying a new warehouse for $2 million,the cost of which would be depreciated over 10 years.If AOS Industries has a tax rate of 25%,what would be the impact on the amount of cash held by AOS at the the end of the 2015?
A)It would have $2,00,000 less cash at the end of 2015. 
B)It would have $1,950,000 less cash at the end of 2015. 
C)It would have $150,000 less cash at the end of 2015. 
D)It would have an additional $50,000 in cash at the end of 2015. 
E)It would have $1,800,000 less cash at the end of 2015.

Quizplus · Accepted Answer

The purchase of the new warehouse for $2 million would result in a cash outflow of $2 million. However, since the cost would be depreciated over 10 years, the depreciation expense for 2015 would be $200,000 ($2 million divided by 10 years). Since AOS Industries has a tax rate of 25%, the tax savings from this depreciation expense would be $50,000 ($200,000 multiplied by 25%). Therefore, the net cash outflow for the investment would be $1,950,000 ($2 million minus $50,000), and consequently, AOS Industries would have $1,950,000 less cash at the end of 2015.

Use the Table for the Question(s)below