US CMA Part 2 · Chapter 8 · Question 3 of 15
A project will increase annual revenue by $300,000 and cash operating costs by $120,000. Annual tax depreciation is $100,000 and the tax rate is 25%. What is the annual after-tax operating cash flow?
Test yourself: pick an answer
Reveal answer & explanation
Correct answer: D) $160,000
Explanation
Taxable income = $300,000 - $120,000 - $100,000 = $80,000. Net income = $80,000 x (1 - 25%) = $60,000. Add back non-cash depreciation: $60,000 + $100,000 = $160,000. Alternatively: ($180,000 x 0.75) + ($100,000 x 0.25) = $135,000 + $25,000 = $160,000.
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