Question

Donata Company purchased equipment for $30,000 in December 20x1. The equipment is expected to generate $10,000 per year of additional revenue and incur $2,000 per year of additional cash expenses, beginning in 20x2. Under MACRS, depreciation in 20x2 will be $3,000. If the firm's income tax rate is 40%, the after-tax cash flow in 20x2 would be:

Answer 1

Answer:

Total after-tax cash flow= $6000

Explanation:

Giving the following information:

Equipment value= $30,000 in December 20x1.

Income= $10,000 p

Cost= $2,000 per year.

Depreciation= $3,000.

t=0,40

Cash flow has the following structure:

Income (+)

Cost (-)

Depreciation (-)

=EBIT

TAX (-)

Depreciation (+)

Total

Income= 10000

Costs= -2000

Depreciation= -3000

EBIT= 5000

Tax= -2000

Depreciation= 3000

Total= 6000