Question

As assistant to the CFO of Boulder Inc., you must estimate the Year 1 cash flow for a project with the following data. What is the Year 1 cash flow? Sales Revenues: $13,000; Depreciation $4,000; Other Operating Costs: $6,000; Tax Rate: 35.0%
a. $5,950
b. $6,099
c. $6,251
d. $6,407
e. $6,568

Answer 1

Answer:

a. $5,950

Explanation:

To determine aftertax cashflow for this company in year 1, use the following formula;

First find Net Income;

Net Income(NI) = (Revenues - Depreciation - Other operating costs)* (1-tax)

NI = (13,000 - 4,000 - 6,000) (1-0.35)

NI = 3,000*0.65

NI = $1,950

Next, add back Depreciation since it is not an actual cash outflow;

After tax cashflow(Yr1) = Net income + Depreciation

= $1,950 + $4,000

= $5,950