Crossword Company is studying a capital project that will produce $600,000 of added sales revenue, $400,000 of additional cash operating expenses, and $50,000 of depreciation. Assuming a 30% income tax rate, the company's after-tax cash inflow (outflow) is:

Question

Quizplus · Accepted Answer

First, we need to calculate the earnings before interest and taxes (EBIT) which is calculated by subtracting the additional cash operating expenses and depreciation from the added sales revenue:

EBIT = $600,000 - $400,000 - $50,000 = $150,000

Next, we need to calculate the taxes owed on the EBIT at a rate of 30%:

Taxes = 0.3 * $150,000 = $45,000

Finally, we can calculate the after-tax cash inflow (outflow) by subtracting the taxes owed from the EBIT:

After-tax cash inflow = EBIT - Taxes = $150,000 - $45,000 = $105,000

Therefore, the correct answer is choice C, $155,000.

Crossword Company Is Studying a Capital Project That Will Produce