Question

Weston Company is considering a capital project that delivers a $59,000 annual net cash flow before tax. The investment will result in annual depreciation expense of $13,600 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

Answer 1

Amount of annual after-tax net cash flow = $40,840

Step-by-step explanation:

Given:

Annual net cash flow before tax = $59,000

Depreciation expense = $13,600

Tax rate = 40%

Computation of annual after-tax net cash flow:

Particular Amount

Annual net cash flow before tax $59,000

Less : Tax ($59,000 × 40%) $23,600

After tax net cash flow $35,400

Add: tax savings on depreciation $5,440

($13,600 x 40%)

Amount of annual after-tax net cash flow $40,840