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Computing After-tax Cash Flow

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Sharon has not worked outside the home since her first child was born five years ago. Now that the younger of her two children has reached age three, she thinks they are old enough to go to a day care center and she can return to work. Sharon received two job offers. Mahalo Company offered to pay her a salary of $19,000 and also provide free on-site child care facilities as an employee fringe benefit. Ghana Company offered to pay her a salary of $26,000 but offers no employee fringe benefits. There is a day care facility across the street from Ghana Company that would cost $525 per month. Sharon files a joint tax return with her husband, Tom. Their current taxable income, without Sharon's salary, is $70,000. Sharon and Tom would like to know which job provides the greater after-tax cash flow

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Solution Summary

Using a complex fact set, this solution illustrates how to compute a person's after-tax cash flow from two job offers. It is as much a tax problem as a cost accounting problem.

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Bushmaster, Cobra and Asp: After Tax Net cash flows, NPV and purchase decision

The law firm of Bushmaster, Cobra and Asp is considering investing in a complete small business computer system. The initial investment will be $35,000. The computer is in the 5-year MACRS category, and the firm's tax rate is 34%. The computer system is expected to provide additional revenue of $15,000 per year for the next six years, and to reduce expenses by $10,000 per year for the same period.
(a) Calculate the net after-tax cash flows from this investment.
(b) Calculate the net present value of the system, that the law firm's weighted average cost of capital is 12%.
(c) Should they buy the computer system?

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