CMA Study Group

ABC corp is considering the acquisition of a new computer-aided machine tool to replace an existing, outdated model. Relevant information includes the following:
Projected annual cash savings.  $28400
Annual depreciation- new machine - $16000
Annual depreciation - old machine - $1600
Income tax rate - 40%

Annual after-tax cash flows for the project would amount to?
A. $5600
B. $11,360
C. $17,040
D. $22,800

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Swarnakshi Jha
Administrative
Raipur CT
India
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22800 d

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Venkata Sai Nadikattu
Student
Guntur.
India
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Hi,

Answer should be 22800 which is (28400*60%)+(16000*40%)-(1600*40%). Using incremental benefit approach.

Best

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Tushar Gupta
Other
Delhi
India
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that's corrrect

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Swarnakshi Jha
Administrative
Raipur CT
India
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Original Message:
Sent: 09-30-2022 01:07 AM
From: Tushar Gupta
Subject: Calculation of After tax cash flow

Hi,

Answer should be 22800 which is (28400*60%)+(16000*40%)-(1600*40%). Using incremental benefit approach.

Best

Tushar

Delhi, india

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Tushar Gupta
Other
Delhi
India
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The cash savings is $28400 so the net amount will be taken as 28400(1-tax)= 17040
for depreciation whenever new and old depreciation is given we take the incremental value for calculation purpose 16000-1600(tax rate)
16000-1600(0.4)= $5760. Thus, the after-tax cashflow from the projects would be = 17040+5760= $22,800

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Sinduri Rao
Mumbai MH
India
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yes the correct answer is d

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Swarnakshi Jha
Administrative
Raipur CT
India
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that's correct

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Swarnakshi Jha
Administrative
Raipur CT
India
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