Weston Company is considering a capital project that delivers a $50,000 annual net cash flow before tax.The investment will result in annual depreciation expense of $10,000 over the project's four-year useful life.Assuming a tax rate of 40%,what amount of annual after-tax net cash flow will be provided by this project?

Question

Quizplus · Accepted Answer

To calculate the annual after-tax net cash flow, we first need to calculate the taxable income.

Net cash flow before tax = $50,000

Depreciation expense per year = $10,000

Taxable income = Net cash flow before tax - Depreciation expense 
Taxable income = $50,000 - $10,000 = $40,000

Tax payable at 40% = $40,000 x 0.4 = $16,000

Annual after-tax net cash flow = Net cash flow before tax - Tax payable 
Annual after-tax net cash flow = $50,000 - $16,000 = $34,000

Therefore, the correct answer is C.

Weston Company Is Considering a Capital Project That Delivers a $50,000