Purchase Solution

Jim Bo's currently has annual cash revenues of \$240,000 and annual operating expenses of \$185,000 including \$35,000 in depreciation. The firm's marginal tax rate is 40 percent. A new cutting machine can be purchased for \$120,000 that will increase revenues by \$50,000 per year while operating expenses would increase to \$205,000, including \$42,000 in depreciation. Compute Jim Bo's annual incremental after-tax net cash flows.

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Jim Bo's currently has annual cash revenues of \$240,000 and annual operating expenses of \$185,000 including \$35,000 in depreciation. The firm's marginal tax rate is 40 percent. A new cutting machine can be purchased for \$120,000 that will increase revenues by \$50,000 per year while operating expenses would increase to \$205,000, including \$42,000 in depreciation. Compute Jim Bo's annual incremental after-tax net cash flows.
a. \$25,000
b. \$20,800
c. \$93,000
d. \$19,000

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Before cash Flow calculation
Revenue = 240,000
Operating expenses = 185,000
Profit before tax = 55,000 (revenue - ...

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