Lennox Corporation has provided the following information concerning a capital budgeting project: The company's tax rate is 30%. The company's after-tax discount rate is 8%. The project would require an investment of $20,000 at the beginning of the project. This working capital would be released for use elsewhere at the end of the project. The company uses straight-line depreciation on all equipment.
The total cash flow net of income taxes in year 2 is:
A) $30,000
B) $26,000
C) $41,000
D) $50,000

Question

Lennox Corporation has provided the following information concerning a capital budgeting project:  The company's tax rate is 30%. The company's after-tax discount rate is 8%. The project would require an investment of $20,000 at the beginning of the project. This working capital would be released for use elsewhere at the end of the project. The company uses straight-line depreciation on all equipment.
The total cash flow net of income taxes in year 2 is:
A) $30,000 
B) $26,000 
C) $41,000 
D) $50,000

Quizplus · Accepted Answer

Depreciation expense = (Original cost - Salvage value) ÷ Useful life
= ($80,000 - $0) ÷ 4 years = $20,000 per year
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Lennox Corporation Has Provided the Following Information Concerning a Capital