Answer:
a. $44,000
Explanation:
The computation of the total cash flow net of income taxes in year 3 is shown below:
= Incremental sales - annual incremental cash operating expenses - one-time renovation expense - depreciation expense - income tax expense + depreciation expense
= $310,000 - $230,000 - $30,000 - $30,000 - $6,000 + $30,000
= $44,000
Since depreciation is a non-cash expense so it would be added back to the computation part
The depreciation expense would be
= (Original cost - residual value) ÷ (useful life)
= ($120,000 - $0) ÷ (4 years)
= ($120,000) ÷ (4 years)
= $30,000
And, the income tax expense would be
= (Incremental sales - annual incremental cash operating expenses - one-time renovation expense - depreciation expense) × tax rate
= ($310,000 - $230,000 - $30,000 - $30,000) × 30%
= $20,000 × 30%
= $6,000
