Hazeldine Company plans to incur $230,000 of additional cash operating expenses and produce $410,000 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 additional cash operating expenses of $230,000 are considered an outflow, while the additional sales revenue of $410,000 is considered an inflow. However, since there is a 30% tax rate, the net cash flow is calculated as follows:

Net cash flow = (additional sales revenue - additional cash operating expenses) × (1 - tax rate)
Net cash flow = ($410,000 - $230,000) × (1 - 0.30)
Net cash flow = $126,000

Therefore, the additional cash operating expenses and sales revenue should be analyzed together as a $126,000 inflow in the capital budgeting analysis. Choice D is the correct answer.

Hazeldine Company Plans to Incur $230,000 of Additional Cash Operating