Warren Company plans to open a new repair service center for one of its electronic products. The
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Revenues.............. $ 360,000
Less: Cash operating expenses ..... (150,000)
Depreciation ........... (120,000)
Income before income taxes ..... $ 90,000
Less: Income taxes (@ 40%) ..... 36,000
Net income ........... $ 54,000
Required:
1. Using the income approach, calculate the after-tax cash flows.
2. Using the decomposition approach, calculate the after-tax cash flows for each item of the income statement and show that the total is the same as the income approach.
3. What if it is desirable to express the decomposition approach in a spreadsheet format for the four years to facilitate the use of spreadsheet software packages? Express the decomposition approach in a spreadsheet format, with a column for each income item and a total column.
Salvage Value
Salvage value is the estimated book value of an asset after depreciation is complete, based on what a company expects to receive in exchange for the asset at the end of its useful life. As such, an asset’s estimated salvage value is an important...
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Related Book For
Cornerstones of Cost Management
ISBN: 978-1285751788
3rd edition
Authors: Don R. Hansen, Maryanne M. Mowen
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