Question

A project will increase revenues by $45,000 but will increase operating expenses by $15,000 and increase depreciation by $5,000. Assume that the tax rate is 30%. The net cash flows is____.

An asset that has a book of 6,500 could be sold for $8,000 at the end of the project life. At the beginning of the project the company invested $3,500 in net working capital. The tax rate is 40%. The net salvage value is___.

Financial analysts focus on ____ when evaluating potential investments.

		cash flows
		profit
		Net cash flows
		expenses

Answer 1

1. the following is the calculation of net cash flow:

revenues	45,000
less:operatin expenses	(15,000)
less: depreciation	(5,000)
income before tax	25,000
less: tax@30%	(7,500)
income after tax	17,500
add: depreciation	5,000
net cash flows	22,500

2nd question:

capital gain on asset = 8,000 - 6,500 =>1,500.

tax on 1500 @40% =>600

the following table shows the net salvage value:

sale price	8,000
less: tax on capital gain	(600)
net salvage value	$7,400

3rd question:.

financial analysts focus on cashflows when evaluating potential investments.