Question

Fill in the ‘boxed’ values in the after tax cash flow below.

EOY	B4TCF	Interest	Principal	Deprec	Taxable Inc.	Taxes	ATCF
0	-125,000		-50,000				-75,000
1	10,000	5,000	10,774			-2,850	-2,924
2				22,500	-6,423	-2,441	6,667
3	30,000	2,738	13,036		9,262	3,520
4	40,000	1434	14,340	14,400	24,166		15,043
5	80,000			11,525	68,475	26,021	53,980

Answer 1

	B4TCF	interest	principal	depreciation	taxable income	taxes	ATCF
0	-125000		-50000				-75000
1	10000	5000	10774	12500	-7500	-2850	-2924
2	20000	3923	11851	22500	-6423	-2441	6667
3	30000	2738	13036	18000	9262	3520	10706
4	40000	1434	14340	14400	24166	9183	15043
5	80000			11525	68475	26021	53980

working

1. Tax Rate = 38%
2. Taxes = 38% * Taxable Income
3. Principal + Interest = 15774
4. Interest = 10% of Cumulative Principal i.e. 10% of Principal outstanding
5. B4CTF – Interest – Depreciation = Taxable Income
6. B4CTF – Interest – Principal – Taxes = ATCF

Year 1 Taxable Income = -2850/38%

= -7500

Year 1 Depreciation = B4CTF – Interest – Taxable Income

= 10000 – 5000 – (-7500)

= 12500

Year 2 Interest = 10% * (-50000 + 10774)

= 3923

Year 2 Principal = 15774 – 3923

= 11851

Year 2 B4CTF = Taxable Income + Interest + Depreciation

= -6423 + 3923 + 22500

Year 3 Depreciation = B4CTF – Interest – Taxable Income

= 30000 – 2738 – 9262

= 18000

Year 3 ATCF = B4CTF – Interest – Principal – Taxes

= 30000 – 2738 – 13036 – 3520

= 10706

Year 4 Taxes = 38% * 24166

= 9183