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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.

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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