Scorch & Burn Fire Extinguishers, Inc. had an operating income (EBIT) of $260,000 last year. The firm had $18,000 in depreciation expenses, $15,000 in interest expenses and $60,000 in selling, general, and administrative expenses. If Scorch & Burn has a marginal tax rate of 40%, what was its after-tax cash flow for last year?
A) $165,000
B) $129,000
C) $174,000
D) $147,000

Question

Quizplus · Accepted Answer

The correct answer is A.The after-tax cash flow is calculated as follows:EBIT + Depreciation - Interest - SG&A - Taxes = After-tax cash flow$260,000 + $18,000 - $15,000 - $60,000 - ($260,000 - $18,000) * 0.4 = $165,000