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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: Required: Compute the after-tax cash flows of each project. The tax rate is 40 percent and includes federal and state assessments.

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Cornerstones of Cost Management (C...

4th Edition
Don R. Hansen + 1 other
Publisher: Cengage Learning
ISBN: 9781305970663

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Chapter
Section
BuyFindarrow_forward

Cornerstones of Cost Management (C...

4th Edition
Don R. Hansen + 1 other
Publisher: Cengage Learning
ISBN: 9781305970663
Chapter 19, Problem 17E
Textbook Problem
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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:

Chapter 19, Problem 17E, Postman Company is considering two independent projects. One project involves a new product line, , example  1

Chapter 19, Problem 17E, Postman Company is considering two independent projects. One project involves a new product line, , example  2

Required:

Compute the after-tax cash flows of each project. The tax rate is 40 percent and includes federal and state assessments.

To determine

Calculate the after tax cash flows for the given projects of Company P.

Explanation of Solution

Cash inflows: The amount of cash received by a company from the operating, investing, and financing activities of the business during a certain period is referred to as cash inflow.

Cash outflows: The amount of cash paid by a company for the operating, investing, and financing activities of the business during a certain period is referred to as cash outflow.

Calculate the after tax cash flows for the given projects of Company P as follows:

Project I:

Cash inflow = Net income after tax + Depreciation=$54,000+$45,000=$99,000

Project II:

Cash inflow = (Cash expense after tax+Depreciation expense after tax)=($54,000)(1)+$36,000(2)=($18,000)

Working note (1):

Calculate the cash expense after tax

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Chapter 19 Solutions

Cornerstones of Cost Management (Cornerstones Series)
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