Capital budgeting--typical inflows and outflows

Capital budgeting--typical inflows and outflows - after-tax...

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Accounting 230 Chapter 21-Capital Budgeting Horngren 13 th Ed. Typical Cash Inflows Typical Cash Outflows 1. Cost Savings—taxable 1. Investment in Equipment/Bldg— NOT taxable 2. Additional revenues/profits—taxable 2. Investment in Working Capital—NOT taxable 3. Salvage value—taxable 3. Increase in operating expenses— taxable 4. Release of Working Capital—NOT taxable 4. Major repair—taxable NEW INFLOW if tax rate in the problem 5. Depreciation tax shield GENERAL RULE to convert an inflow/outflow to an
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Unformatted text preview: after-tax amount: Multiply the inflow/outflow by (1-tax rate) Example: Cost savings tax rate is 40% $25,000 X (1-40%) = $15,000 is the after-tax cost savings EXCEPTION TO THE GENERAL RULEuse for Depreciation tax shield and Gain/Losses Multiply the depreciation expense or gain/loss by the tax rate directly Example: Depreciation Expense tax rate is 40% $10,000 X 40% = $4,000 is the after-tax depreciation cash inflow...
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