McConachie’s incremental annual after-tax operating cash flow is closest to:
McConachie Company is considering the purchase of a new 400-ton stamping press.
The press costs $360,000, and an additional $40,000 is needed to install it. The press will be
depreciated straight-line to zero over a five-year life. The press will generate no additional
revenues, but it will reduce cash operating expenses by $140,000 annually. The press will be
sold for $120,000 after five years. An inventory investment of $60,000 is required during the
life of the investment. McConachie is in the 40 percent tax bracket.
A. $116,000.
B. $124,000.
C. $140,000
Answer: A. $116,000.
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