To open a new store, Ross Tire Company plans to invest $640,000 in equipment expected to have a four-year useful life and no salvage value. Ross expects the new store to generate annual cash revenues of $840,000 and to incur annual cash operating expenses of $520,000. Ross' average income tax rate is 30 percent. The company uses straight-line depreciation.
Determine the expected annual net cash inflow from operations for each of the first four years after Ross opens the new store.
Please refer attached file for better clarity of table in MS Excel.
Depreciation=(Plant Cost-Salvage)/Useful life=$160,000
Tax liability=(Operating Revenue-Operating expense-Depreciation)*Tax ...
Solution depicts the steps to estimate the annual net cash flow in the given case.