After-Tax Cash Flows Warren Company plans to open a new repair service center for one of its electronic products. The center requires an investment in depreciable assets costing $460,000. The assets will be depreciated on a straight-line basis, over four years, and have no expected salvage value. The annual income statement for the center is given below. Revenues $480,000 Less: Cash operating expenses (192,000) Depreciation (115,000) Income before income taxes $173,000 Less: Income taxes (@40%) 69,200 Net income $103,800 Required: 1. Using the income approach, calculate the after-tax cash flows. $fill in the blank 1 2. Using the decomposition approach, calculate the after-tax cash flows for each item of the income statement and show that the total is the same as the income approach. Enter cash expenses as negative amounts and noncash expenses as positive amounts. Revenue (after tax) $fill in the blank Cash expenses (after tax) fill in the blank Depreciation tax savings fill in the blank Operating cash flow $fill in the blank 3. What if it is desirable to express the decomposition approach in a spreadsheet format for the four years to facilitate the use of spreadsheet software packages? Express the decomposition approach in a spreadsheet format, with a column for each income item and a total column. Enter the after-tax cash expenses as negative amounts. Enter the after-tax revenues and the tax savings from noncash expenses as positive amounts. Year Revenue Cash operating expenses Noncash operating expenses Cash flow 1 $fill in the blank $fill in the blank $fill in the blank $fill in the blank 2 fill in the blank fill in the blank fill in the blank fill in the blank 3 fill in the blank fill in the blank fill in the blank fill in the blank 4 fill in the blank fill in the blank fill in the blank fill in the blan

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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After-Tax Cash Flows

Warren Company plans to open a new repair service center for one of its electronic products. The center requires an investment in depreciable assets costing $460,000. The assets will be depreciated on a straight-line basis, over four years, and have no expected salvage value. The annual income statement for the center is given below.

Revenues	$480,000
Less: Cash operating expenses	(192,000)
Depreciation	(115,000)
Income before income taxes	$173,000
Less: Income taxes (@40%)	69,200
Net income	$103,800

Required:

1. Using the income approach, calculate the after-tax cash flows.
$fill in the blank 1

2. Using the decomposition approach, calculate the after-tax cash flows for each item of the income statement and show that the total is the same as the income approach. Enter cash expenses as negative amounts and noncash expenses as positive amounts.

Revenue (after tax)	$fill in the blank
Cash expenses (after tax)	fill in the blank
Depreciation tax savings	fill in the blank
Operating cash flow	$fill in the blank

3. What if it is desirable to express the decomposition approach in a spreadsheet format for the four years to facilitate the use of spreadsheet software packages? Express the decomposition approach in a spreadsheet format, with a column for each income item and a total column. Enter the after-tax cash expenses as negative amounts. Enter the after-tax revenues and the tax savings from noncash expenses as positive amounts.

Year	Revenue	Cash operating expenses	Noncash operating expenses	Cash flow
1	$fill in the blank	$fill in the blank	$fill in the blank	$fill in the blank
2	fill in the blank	fill in the blank	fill in the blank	fill in the blank
3	fill in the blank	fill in the blank	fill in the blank	fill in the blank
4	fill in the blank	fill in the blank	fill in the blank	fill in the blank

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