Daisy Company is considering the purchase of equipment for $400,000.The equipment will have a ten year life with no terminal salvage value.Straight-line depreciation will be used for tax purposes.It is expected that the equipment will generate annual sales of $180,000 and annual production costs,exclusive of depreciation,of $120,000.The tax rate is 40%.What is the net annual after-tax cash flow from the equipment?

Question

Quizplus · Accepted Answer

Net annual cash flow from the equipment can be calculated as follows:

Sales revenue: $180,000
Production costs: -$120,000
Depreciation: -$40,000 ($400,000 / 10 years)
Taxable income: $20,000
Taxes (40%): -$8,000
Net annual after-tax cash flow: $12,000

Therefore, the correct choice is C, which is closest to the calculated net annual after-tax cash flow of $12,000.

Daisy Company Is Considering the Purchase of Equipment for $400,000