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 (5-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:

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

Transcribed Image Text:

Cash revenues Less: Cash expenses Depreciation $120,000 (50,000) (20,000) Income before income taxes $ 50,000 Less: Income taxes 20,000 Net income $ 30,000