CA Inter P6 · Chapter 7 · Question 6 of 10
A project's annual profit before depreciation and tax is ₹ 4,00,000. Depreciation is ₹ 1,00,000 and the tax rate is 30%. The annual cash flow after tax (CFAT) is:
Test yourself: pick an answer
Reveal answer & explanation
Correct answer: C) ₹ 3,10,000
Explanation
Profit before tax = 4,00,000 - 1,00,000 = ₹ 3,00,000. Tax at 30% = ₹ 90,000. PAT = ₹ 2,10,000. CFAT = PAT + depreciation = 2,10,000 + 1,00,000 = ₹ 3,10,000. Equivalently, CFAT = 4,00,000 x 0.7 + 1,00,000 x 0.3 = 2,80,000 + 30,000 = ₹ 3,10,000, where ₹ 30,000 is the depreciation tax shield.
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