Amel Corporation has provided the following information concerning a capital budgeting project:

The working capital would be required immediately and would be released for use elsewhere at the end of the project. The company uses straight-line depreciation on all equipment. Assume cash flows occur at the end of the year except for the initial investments. The company takes income taxes into account in its capital budgeting.

-The total cash flow net of income taxes in year 2 is:
A)$60,000
B)$69,000
C)$43,000
D)$90,000

Question

Amel Corporation has provided the following information concerning a capital budgeting project:

The working capital would be required immediately and would be released for use elsewhere at the end of the project. The company uses straight-line depreciation on all equipment. Assume cash flows occur at the end of the year except for the initial investments. The company takes income taxes into account in its capital budgeting.

-The total cash flow net of income taxes in year 2 is:
A)$60,000 
B)$69,000 
C)$43,000 
D)$90,000

Quizplus · Accepted Answer

To calculate the total cash flow net of income taxes in year 2, we need to start with the operating income for that year, which is $100,000. Then we subtract the income tax expense, which is $30,000. We also need to add back any non-cash expenses, which in this case is depreciation of $1,000. Therefore, the total cash flow net of income taxes in year 2 is $69,000 ($100,000 - $30,000 + $1,000). Option B is the closest to this amount.

Amel Corporation Has Provided the Following Information Concerning a Capital