A company is considering the purchase of some equipment that in the second year of operation should cause an increase in sales of $200,000, an increase in cash expenses of $120,000, and CCA of $60,000. If the appropriate tax rate is 40%, what will be the after-tax effect on net income in year two?

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The after-tax effect on net income in year two is $72,000. This is calculated as follows:Increase in sales: $200,000Increase in cash expenses: $120,000CCA: $60,000Taxable income: $20,000Taxes (40%): $8,000After-tax net income: $12,000

A Company Is Considering the Purchase of Some Equipment That