Santa Rita Company has a tax rate of 20 percent on taxable income. It is considering a capital project that will make the following annual contribution to operating income:
Cash revenues.................................................. $ 360,000
Cash expenses.................................................. (160,000)
Depreciation.................................................... (140,000)
Operating income before income taxes....................... $ 60,000
Income taxes at 20%.......................................................... (12,000)
Operating income................................................ $ 48,000
1. Determine the net cash inflows for this project in two different ways. Are net cash inflows the same under either approach?
2. What is the impact of income taxes on net cash inflows?