Ruth Company has a tax rate of 40% and a required rate of return of 12%.The company has new equipment that saves $200,000 per year in labor costs.What is the annual after-tax cash flow from the labor cost savings?

Question

Quizplus · Accepted Answer

The annual after-tax cash flow from the labor cost savings would be calculated as follows: 
Annual savings = $200,000 
Tax savings (40% * $200,000) = $80,000 
After-tax savings = $200,000 - $80,000 = $120,000 
Therefore, the annual after-tax cash flow from the labor cost savings is $120,000 cash inflow.

Ruth Company Has a Tax Rate of 40% and a Required