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Determining the annual cash flow in the given case

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.

Required

Determine the expected annual net cash inflow from operations for each of the first four years after Ross opens the new store.

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Solution Preview

Please refer attached file for better clarity of table in MS Excel.

Plant Cost=$640,000
Salvage=0
Useful life=4
Depreciation=(Plant Cost-Salvage)/Useful life=$160,000

Operating Revenue=$840,000
Operating expense=$520,000
Tax liability=(Operating Revenue-Operating expense-Depreciation)*Tax ...

Solution Summary

Solution depicts the steps to estimate the annual net cash flow in the given case.

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