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9 September, 10:32

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:

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  1. 9 September, 13:15
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    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
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