A company buys $250 of equipment on 1 January, funded entirely with a $250 interest-only loan at 10%. The equipment is depreciated straight-line over five years, the tax rate is 40%, and the company is profitable elsewhere so the tax benefit is received in cash this year. What is the impact on net income and on total cash by 31 December of that first year?

• Net income falls $45 and cash rises $5
• Net income falls $75 and cash is unchanged
• Net income falls $45 and cash falls $245
• Net income falls $45 and cash falls $45
• Net income falls $30 and cash rises $20