Badlands Outdoor Adventures Inc. has a proposed operating
efficiency project (technology) that will NOT impact revenues, but
will save operating expenses of $55,000 per year, excluding
depreciation expenses. The total depreciable cost of the project is
$400,000 and the company will depreciate the asset using 8 year
straight line depreciation (equal amounts) to a zero basis. Assume
that Badlands marginal tax rate is 44 percent, what is the annual
incremental after tax cash flow of this project?
(Hint: Because the depreciation expense is the same each year,
the incremental operating cash flow will be the same for every
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