Various Cash Flow Computations

Required:

Solve each of the following independent cases:

1. A printing company has decided to purchase a new printing press. Its old press will be sold for $10,000. (It has a book value of $25,000.) The new press will cost $50,000. Assuming that the tax rate is 40 percent, compute the net after-tax cash outflow.

2. The maintenance department is purchasing new diagnostic equipment costing $30,000. Additional cash expenses of $2,000 per year are required to operate the equipment. MACRS depreciation will be used (five-year property qualification). Assuming a tax rate of 40 percent, prepare a schedule of after-tax cash flows for the first four years.

3. The projected income for a project during its first year of operation is as follows:

Cash revenues ........$120,000

Less: Cash expenses .......(50,000)

Depreciation ..........(20,000)

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

Less: Income taxes .......20,000

Net income ..........$ 30,000

Compute the following:

a. After-tax cash flow

b. After-tax cash flow from revenues

c. After-tax cash expenses

d. Cash inflow from the shielding effect of depreciation