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Calculate the after tax cash flow if you know the revenues for a business are $2.5 million, operating costs of $1.5 million, a marginal tax rate of 45% and depreciation of $1 million? (A) $500k (B) $750k (C) $1 million (D) $1.25 million For the information in problem 13. If the revenue for the business increase and everything else stays the same, you would expect the after tax cash flow to: (A) Increase (B) Decrease For the information in problem 14. If the operating costs go up for the business increase and everything else stays the same, you would expect the after tax cash flow to: (A) Increase (B) Decrease For the information in problem 14. If the marginal tax rate increases and everything else stays the same, you would expect the after tax cash flow to: (A) Increase (B) Decrease
Expert Answer
Answer 1 – After tax cash flow =
Tax payment =( 2.5 – 1.5 – 1 ) * 35 % = 0
So, after tax cash flow = 2.5 -1.5 = $ 1 million ( depreciation is a non cash transaction ) ( Option C is correct )
Answer 2 – After tax cash flow will increase as revenues will increase.
Answer 3 – After tax cash flow will decrease as payment for operating exp. will increase.
Answer 4 – After tax cash flow will decrease as tax payment will increase
