Jenkins plans to generate $650,000 of sales revenue if a capital project is implemented

Question:

Jenkins plans to generate $650,000 of sales revenue if a capital project is implemented. Assuming a 30% tax rate, the sales revenue should be reflected in the analysis by a:

A. $195,000 inflow.
B. $195,000 outflow.
C. $455,000 inflow.
D. $455,000 outflow
E. $650,000 inflow.

Answer:

Cash Flow takes out taxes. In this case there is no depreciation.

Cash Flow From Operating Activities = EBIT + Depreciation – Taxes

Cash Flow = $650,000 – ($650,000)(0.3) = $650,000 – $195,00 = $455,000

C. $455,000 Inflow

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