Income Tax Factors. R. Jack and J. Jill have formed a corporation to franchise a quick food system for shopping malls. They have just completed experiments with a prototype machine which will serve as...

Income Tax Factors. R. Jack and J. Jill have formed a corporation to franchise a quick food system for shopping malls. They have just completed experiments with a prototype machine which will serve as the basis of the operation. Because the system is new and untried, they have decided to conduct a pilot operation in a nearby mall. When it proves successful, they will aggressively market the franchises.

                The income statements below represent Jack and Jill’s best estimates of income from the mall operation for the next 4 years. At the end of the 4-year period they intend to sell the operation and concentrate on the sale of and supervision of franchises. Based upon the income stream projected, they believe the operation can be sold for $190,000; the income tax liability from the sale will be $40,000.

1. Calculate the cash flow for the mall operation for the 4-year period beginning January 1, 20X6, ignoring tax implications.

2. Adjust the cash flows for tax consequences as appropriate.