Question

Computation of After-Tax Cash Flows

Postman Company is considering two independent projects. One project involves a new product line, and the other involves the acquisition of forklifts for the Materials Handling Department. The projected annual operating revenues and expenses are as follows:

Project I (investment in a new product)
Revenues	$270,000
Cash expenses	(135,000)
Depreciation	(45,000)
Income before income taxes	$90,000
Income taxes	36,000
Net income	$54,000

Project II (Acquisition of Two Forklifts)
Cash expenses	$90,000
Depreciation	90,000

Required:

Compute the after-tax cash flows of each project. The tax rate is 40 percent and includes federal and state assessments. Enter cash outflows as negative amounts and cash inflows as positive amounts.

	Cash Flows
Project I	$ 99,000
Project II	$ ?

What is Project II?

********Use the income approach for Project 1 and the decomposition approach for Project 2.

Answer 1

	Project 1	Project II
Revenues	270,000	270,000
Cash Expenses	-135,000	-90,000
Depriciation	-45,000	-90,000
Income Before Taxes	90,000	90,000
Less: Income Taxes	36,000	36,000
Net Income	54,000	54,000
	Project 1	Project II
Net Income	54,000	54,000
Add: Depriciation	45,000	90,000
Cash Flow	99,000	144,000