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    Project's cash flows

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    1) For a capital budgeting proposal, assume this year's cash sales are forcast to be $220, cash expenses $130, and depreciation $80. Assume the firm is in the 30% tax bracket. Is it possible to determine the projects after tax cash flow.

    2) A restaurant is considering an expansion. Construction will cost $90,000 and will be depreciated to zero, using straight line depreciation, over 5 years. Earnings before depreciation are expected to be $20,000 in each of the next 5 years. The restaurant's tax rate is 34%. What are the projects cash flows. Please expalin calculation if possible.

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    Solution Preview

    1) For a capital budgeting proposal, assume this year's cash sales are forcast to be $220, cash expenses $130, and depreciation $80.
    Assume the firm is in the 30% tax bracket. Is it possible to determine the projects after tax cash flow.

    Project's after tax cash flow is:

    Sales 220
    Less Expenses 130
    EBDT 90
    Less Depreciation 80
    Profit before tax 10
    Less taxes 3
    Profit after taxes 7
    Add Depreciation 80
    Cash flow after taxes 87

    2) A restaurant is considering an ...

    Solution Summary

    This helps in computation of projects cash flows with the help of various examples

    $2.19

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