Question

Tyson Company has a pre-tax net cash inflow of $1,100,000. The company can claim depreciation expense of $400,000 this year. The company is subject to a combined income tax rate of 21%. What is the after-tax cash flow for the year?

		$700,000.
		$869,000.
		$1,018,000.
		$953,000.
		$1,100,000.

Answer 1

Answer: $953,000

Working:

Tax on cash flow (after claiming depreciation):

= (Net cash flows – Depreciation)*Tax rate

= ($1,100,000-$400,000)*21%

=$147,000

So cash flows after tax = cash inflows – Tax

                                       =$1,100,000-$147,000

                                       =$953,000

Note:

Depreciation is an expense that acts as a tax shield and it is not an actual cash out flow