Cost Management: A Strategic Emphasis 5th Edition by David Stout, Edward Blocher, Gary Cokins

Exercise 50

Working Backward: Determine Periodic Cash Flow Based on Book (Accounting) Rate of Return Dillon, Inc., purchased a new machine for $60,000 on January 1, 2010. The machine is being depreciated on a straight-line basis over five years with no salvage value. The book rate of return is expected to be 15 percent on the initial investment. The machine will generate a uniform cash flow. The firm’s tax rate is 25 percent.

Required What is the expected annual pre-tax cash flow from operations from this investment?