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4 January, 11:51

Weston Company is considering a capital project that delivers a $59,000 annual net cash flow before tax. The investment will result in annual depreciation expense of $13,600 over the project's four-year useful life. Assuming a tax rate of 40%, what amount of annual after-tax net cash flow will be provided by this project

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  1. 4 January, 12:54
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    Amount of annual after-tax net cash flow = $40,840

    Explanation:

    Given:

    Annual net cash flow before tax = $59,000

    Depreciation expense = $13,600

    Tax rate = 40%

    Computation of annual after-tax net cash flow:

    Particular Amount

    Annual net cash flow before tax $59,000

    Less : Tax ($59,000 * 40%) $23,600

    After tax net cash flow $35,400

    Add: tax savings on depreciation $5,440

    ($13,600 x 40%)

    Amount of annual after-tax net cash flow $40,840
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