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:

Question

Adelyn Shepherd

Business

1 May, 00:15

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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Brandon Schwartz · Answer 1

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