Question

To open a new store, Linton Tire Company plans to invest $420,000 in equipment expected to have a seven-year useful life and no salvage value. Linton expects the new store to generate annual cash revenues of $318,000 and to incur annual cash operating expenses of $192,000. Linton's average income tax rate is 30 percent. The company uses straight-line depreciation. Required Determine the expected annual net cash inflow / outflow from operations for each of the first four years after Linton opens the new store. (Negative amounts should be indicated by a minus sign.) Net cash Inflow / Outflow Year 1 Year 2 Year 3 Year 4

Answer 1

Cash revenue	318,000
Cash expense	-192,000
Cash surplus	126,000
Depreciation expense	-60,000
Profit before tax	66,000
Tax expense	-19,800
Profit after tax	46,200
Depreciation expense	60,000
Annual Cash Inflow	$106,200

	Net Cash	Inflow/Outflow
Year 1	106,200	Inflow
Year 2	106,200	Inflow
Year 3	106,200	Inflow
Year 4	106,200	Inflow

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