Question

1. For a particular year, a company has gross annual income of $780,000, annual expenses of $270,000, and allowed depreciation of $60,000. The company is located in a state where the first $200,000 corporate income is tax-free, and any income above that is taxed at a State flat rate of 5%.
a. What is the net cash flow after taxes for the year?
b. What is the company’s federal tax rate?
c. What is the company’s combined (state and federal) tax rate?
d. What is the company’s average state tax rate?

Answer 1

a. Net Cash = 780,000 - 270,000 - 60,000 - 0.05(780,000-200,000) = $421,000.