The Crystal Company uses straight-line depreciation and is considering a capital expenditure for which the following relevant cash flow data have been estimated: Total net inflows during the useful life of the asset are

Question

The Crystal Company uses straight-line depreciation and is considering a capital expenditure for which the following relevant cash flow data have been estimated:  Total net inflows during the useful life of the asset are

Quizplus · Accepted Answer

To find the total net inflows during the useful life of the asset, we need to subtract the initial cost of the asset from the sum of the annual net cash flows. The initial cost is given as $320,000.

Annual net cash flow = (total revenue - total expenses) / useful life 
= ($80,000 - $40,000) / 4 years 
= $10,000

Total net inflows = (annual net cash flow x useful life) - initial cost 
= ($10,000 x 4) - $320,000 
= $40,000 - $320,000 
= $630,000

Therefore, the correct answer is (C).

The Crystal Company Uses Straight-Line Depreciation and Is Considering a Capital