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Problem - Income Taxes and Net Cash Flow

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Problem - Income Taxes and Net Cash Flow

Santa Rita Company has a tax rate of 20 percent on taxable income. It is considering a capital project that will make the following annual contribution to operating income:

Cash revenues

$ 360,000

Cash expenses

(160,000)

Depreciation

(140,000)

Operating income before income taxes

$ 60,000

Income taxes at 20%

(12,000)

Operating income

$ 48,000

Required -

1. Determine the net cash inflows for this project in two different ways (as listed below).

- Receipts and disbursements

- Income adjustment procedure

Are net cash inflows the same under either approach?

2. What is the impact of income taxes on net cash inflows?

Reference no: EM132453411

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