CMA Intermediate · Financial Management and Business Data Analytics · Capital Budgeting
Kaveri Foods plans a project with annual sales of Rs 8,00,000, cash operating costs of Rs 4,00,000 and depreciation of Rs 1,00,000 per year. The tax rate is 30%. What is the annual operating cash flow after tax?
Annual operating cash flow after tax is Rs 3,10,000. Profit before tax is Rs 3,00,000, tax at 30% is Rs 90,000, leaving Rs 2,10,000, and adding back non-cash depreciation of Rs 1,00,000 gives the cash flow.
- ARs 3,00,000
- BRs 3,80,000Correct
- CRs 2,80,000
- DRs 3,10,000
Explanation
EBIT = 8,00,000 - 4,00,000 - 1,00,000 = 3,00,000. Tax = 90,000. NOPAT = 2,10,000. Add back depreciation 1,00,000 to get 3,10,000. Check: (4,00,000 x 0.7) + (1,00,000 x 0.3) = 2,80,000 + 30,000 = 3,10,000. Option Rs 3,80,000 is not it; Rs 2,80,000 ignores the depreciation tax shield.
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