After$-$Tax

Operating Cash FlowsIn addition to

determining the initial out$-$of$-$pocket outlay, managers must also

estimate the annual after$-$tax operating cash flows expected over

the life of the project. If the project generates revenue, the

principal source of cash flows is from operations. Operating cash

inflows can be assessed from the project$$s income statement. The

annual after$-$tax cash flows are the sum of the project$$s after$-$tax

profits and its noncash expenses. In terms of a simple formula,

this computation can be represented as follows:After$-$tax cash flow $=$

After$-$tax net income $+$ Noncash expensesThe income approach to

determine operating cash flows can be decomposed to assess the

after$-$tax, cash flow effects of each individual item on the income

statement. The decomposition approach calculates the operating cash

flows by computing the after$-$tax cash flows for each item of the

income statement as follows:CF $=[(1$ Tax rate$)\backslash$times

Revenues$)][(1-$ Tax rate$)\backslash$times Cash expenses$]+($Tax rate $\backslash$times Noncash

expenses$)$Apply the

ConceptsA company plans to

make a new product that requires new equipment costing $$1,600,000.$

Both the product and equipment have a life of four years. The

equipment will be depreciated on a straight$-$line basis, with no

expected salvage value. The annual income statement for the product

is given below.

Required:Calculate the annual

operating after$-$tax cash flow by completing the following table.

Enter amounts that represent cash outflows as negative numbers.aR

$=$ Revenue.

bC $=$ Cash operating expenses.

cNC $=$ Noncash operating expenses.