San Falesco Company has a tax rate of 25 percent on taxable income. It is considering a capital project that will make the following annual contribution to operating income:

Cash revenues .................$500,000

Cash expenses .................(300,000)

Depreciation ..................(150,000)

Operating income before income taxes ........ $50,000

Income taxes at 25% ............... (12,500)

Operating income ................. $37,500

1. Determine the net cash inflows for this project in two different ways. Are net cash flows the same under either approach?

2. What is the impact of income taxes on net cash flows?