Question

A capital investment project has the following expected incremental values next year: Revenue $1,000,000 Operating costs 200,000 Depreciation 300,000 If the income tax rate is 25%, the incremental after-tax operating cash flow is:

Answer 1

Based on the calculation below, incremental after-tax operating cash flow is $675,000

How to calculate incremental after-tax operating cash flow

This can be calculated as follows:

Profit before interest and tax = Revenue - Operating costs – Depreciation = $1,000,000 - $200,000 - $300,000 = $500,000

Operating income = Profit before tax – (Profit before tax * Tax rate) = $500,000 – ($500,000 * 25%) = $375,000

Therefore, we have:

Incremental after-tax operating cash flow = Operating income + Depreciation = $375,000 + $300,000 = $675,000

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