Postman Company is considering two independent projects. One project involves a new product line, and the other involves the acquisition of forklifts for the Materials Handling Department. The projected annual operating revenues and expenses are as follows:
Project I (investment in a new product)
Revenues..................................$ 270,000
Cash expenses.............................(135,000)
Depreciation.................................(45,000)
Income before income taxes..............$ 90,000
Income taxes................................(36,000)
Net income.................................$ 54,000
Project II (Acquisition of Two Forklifts)
Cash expenses......................$90,000
Depreciation..........................90,000
Required:
Compute the after-tax cash flows of each project. The tax rate is 40 percent and includes federal and state assessments.