Rogers Company purchased equipment for $30 000 in December of 2014. It is expected to generate $10 000 per year in additional revenue and $2000 per year in additional cash expenses beginning in 2015. Depreciation in 2015 will be $3000. The firm's tax rate is 40 per cent. What is the annual after-tax cash flow in 2015?

Question

Quizplus · Accepted Answer

Annual after-tax cash flow in 2015 = (additional revenue – additional expenses – depreciation) × (1 – tax rate)
= ($10,000 – $2,000 – $3,000) × (1 – 0.4)
= $5,000 × 0.6
= $3,000
Therefore, the annual after-tax cash flow in 2015 is $3,000, which is option C.

Rogers Company Purchased Equipment for $30 000 in December of 2014