Question

2.

You are considering opening another restaurant in the TexasBurgers chain. The new restaurant will have annual revenue of $317,400 and operating expenses of $158,700. The annual depreciation and amortization for the assets used in the restaurant will equal $52,900. An annual capital expenditure of $11,000 will be required to offset wear-and-tear on the assets used in the restaurant, but no additions to working capital will be required. The marginal tax rate will be 40 percent. Calculate the incremental annual after-tax free cash flow for the project.

A) $104,860

B) $150,380

C) $108,950

D) $130,240

Answer 1

The incremental annual after tax free cash flow for the project should be $ 105380/- . It seems option 2 is incorrectly written as 105380/-

Annual Revenue	$ 3,17,400.00
Less- Operating Expenses	$ 1,58,700.00
Less- Depreciaton	$     52,900.00
Earning before tax (EBT)	$ 1,05,800.00
Less- Tax @40%	$     42,320.00
Earning after Tax (EBT-tax)	$     63,480.00
Add- Depreciation	$     52,900.00
Less- Capital Expenditure	$     11,000.00
Incremental Annual after tax cash flow	$ 1,05,380.00

For further clarrification please comment.

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