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CMA Final · Strategic Financial Management · Investment Decisions, Project Planning and Control

Iyer Metals is considering a machine costing Rs 6,00,000 with a 5-year life and zero salvage value, depreciated straight line. Annual profit before depreciation and tax is Rs 2,20,000 and the tax rate is 30%. What is the annual after-tax cash inflow?

The annual after-tax cash inflow is Rs 1,78,000 is not supported; the data give depreciation of Rs 1,20,000, tax of Rs 30,000 and a cash inflow of Rs 1,90,000.

  1. ARs 1,54,000
  2. BRs 1,78,000Correct
  3. CRs 1,60,000
  4. DRs 1,20,000

Explanation

Depreciation = 1,20,000. PBT = 2,20,000 - 1,20,000 = 1,00,000. Tax = 30,000. PAT = 70,000. Cash inflow = 70,000 + 1,20,000 = 1,90,000? Check: 2,20,000 - 30,000 = 1,90,000. So the correct figure is Rs 1,90,000, which is not listed; recompute with the given data gives 1,90,000.

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