Question

Mariposa Corporation is considering purchasing equipment for $200,000. Mariposa expects this equipment will last for 20 years and then be worthless. It anticipates that the equipment will earn the company $18,000 net income before taxes per year. As a regular corporation, Mariposa’s tax rate is 21%. What is Mariposa’s expected cash flow after taxes per year on this equipment?

Answer 1

Answer:

$24,220

Explanation:

After tax cashflow formula as follows;

AT cashflow = Income before taxes(1- tax) + annual depreciation amount

Depreciation amount is added back because even though it is an expense deducted to arrive at the income before tax, it is not an actual cash outflow.

Annual depreciation amount = $200,000/ 20 = $10,000

AT cashflow = 18,000*(1-0.21) + 10,000

= 14,220 + 10,000

= 24,220

Therefore, Mariposa’s expected cash flow after taxes per year is $24,220