2D1C REGIS COMPANY, WHICH IS SUBJECT TO AN EFFECTIVE INCOME TAX RATE...
306.
CSO: 2D1c
LOS: 2D1c
Regis Company, which is subject to an effective income tax rate of 30%, is evaluating a
proposed capital project. Relevant information for the proposed project is summarized
below.
Initial investment
$500,000
Annual operating cash inflows
for the first three years.
Year 1
185,000
Year 2
175,000
Year 3
152,000
Depreciation will be calculated under the straight-line method using an 8-year estimated
service life and a terminal value of $50,000. In determining the estimated total after-tax
cash flow in Year 2 of the project, Regis should consider the after-tax operating cash
a.
inflow only.
b.
inflow plus annual depreciation expense.
c.
inflow plus annual depreciation tax shield.
d.
inflow plus the net impact of the annual depreciation expense and depreciation tax
shield.