Simpson Productions Inc. had net sales of $300,000, costs of sales of

Simpson Productions Inc. had net sales of $300,000, costs of sales of $150,000, additional expenses of $100,000, depreciation of $50,000, and a tax rate of 30%. Use this information to determine the firm’s after tax earnings on a cash basis.

A) $0
B) $30,000
C) $35,000
D) $50,000

ANSWER

D
Explanation: D) After-tax cash flow = (Sales – COGS – Dep)(1 – t) + Dep = ($300,000 – $150,000 – $100,000 – $50,000 )(1-.30 ) + $50,000 = $50,000.