Braselton Company plans to incur $190,000 of salaries expense and produce $320,000 of additional sales revenue if a capital project is implemented. Assuming a 30% tax rate, these two items collectively should appear in a capital budgeting analysis as:

Question

Quizplus · Accepted Answer

The increase in sales revenue of $320,000 represents a cash inflow. The salaries expense of $190,000 is a cash outflow. The net effect of these two items is a cash inflow of $130,000 before taxes. Adjusting for the 30% tax rate, the after-tax cash inflow is $91,000, which should be included as an inflow in the capital budgeting analysis.

Braselton Company Plans to Incur $190,000 of Salaries Expense and Produce