Question

A capital investment project is expected to generate an incremental increase in revenues of $15 million and an incremental increase in operating costs of $10 million during its first year. Year 1 incremental depreciation expense is $5 million. The firm’s interest expense will increase by $2 million during year 1. If the firm’s marginal tax rate is 35% what is the year 1 incremental after-tax cash flow for capital budgeting purposes?

Answer 1

$5,000,000

Step-by-step explanation:

Particulars Amount

incremental increase in revenues $15,000,000

- Incremental increase in operating costs $10,000,000

- Incremental depreciation expense $5,000,000

Earnings before interest and taxes $0

Tax ($0 *35%) $0

Operating Income $0

+ Incremental depreciation expense $5,000,000

After Tax Cash flow for capital budgeting $5,000,000