A Profitable Company Pays $100,000 Wages and Has Depreciation Expense

question 26

Multiple Choice

A profitable company pays $100,000 wages and has depreciation expense of $100,000. The company's income tax rate, t, is 40%. The after-tax cash flows from these two items are calculated as follows:

• A) An after-tax cash outflow of $40,000 for wages, and a cash inflow of $60,000 for depreciation expense.
• B) An after-tax cash outflow of $40,000 for wages, and a cash inflow of $40,000 for depreciation expense.
• C) An after-tax cash outflow of $60,000 for wages, and a cash inflow of $60,000 for depreciation expense.
• D) An after-tax cash outflow of $60,000 for wages, and a cash inflow of $40,000 for depreciation expense.
• E) An after-tax cash outflow of $40,000 for wages, and a cash inflow of $100,000 for depreciation expense.