Answer:
Initial outlay = $60,000
Annual net income before tax = $7,200 per annum
Depreciation = Cost - Residual value
Estimated useful life
= $60,000 - 0
12 years
= $5,000 per annum
Annual net cashflow before tax
= Annual net income before tax + Depreciation
= $7,200 + $5,000
= $12,200
Explanation:
In this case, the annual net income before tax has been given. The annual net income before tax has excluded depreciation, which does not involve movement of cash. Therefore, we need to add back depreciation in order to obtain the expected before tax cashflow.
