Brandt Gardner, a financial analyst for DBJ, Inc., is evaluating the possibility of investing in two independent projects. One project entails the acquisition of two trenchers for laying cable, and the other is the acquisition of two forklifts for the warehouse. The expected annual operating revenues and expenses follow for each project:
Project A (investment in trenchers):
|
Revenues
|
$ 270,000
|
|
Cash expenses
|
(135,000)
|
|
Depreciation
|
(45,000)
|
|
Income before income taxes
|
$ 90,000
|
|
Income taxes
|
36,000
|
|
Net income
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$ 54,000
|
|
Project B (acquisition of two forklifts):
|
|
|
Cash expenses
|
$90,000
|
|
Depreciation
|
15,000
|
Required
Compute the after-tax cash flows of each project. The tax rate is 40 percent and includes federal and state assessments.