In: Accounting
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.
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 |