Assignment Problem: Income Taxes and Net Cash Flow
Santa Rita Company has a tax rate of 20 percent on taxable income. It is considering a capital project that will make the following annual contribution to operating income:
|
Cash revenues
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$360,000
|
|
Cash expenses
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-160,000
|
|
Depreciation
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-140,000
|
|
Operating income before income taxes
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$60,000
|
|
Income taxes at 20%
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-12,000
|
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Operating income
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$48,000
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Required:
1. Determine the net cash inflows for this project in two different ways (as listed below).
- Receipts and disbursements
- Income adjustment procedure
Are net cash inflows the same under either approach?
2. What is the impact of income taxes on net cash inflows?
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