Question

You have just landed an internship in the CFO's office of Hawkesworth Inc. Your first task is to 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	25.0%

a. $6,899

b. $6,406

c. $6,250

d. $6,731

e. $6,566

Answer 1

The year 1 cash flow is computed as shown below:

= (Sales revenue - other operating cost - depreciation - tax expenses) + depreciation

Tax expenses is computed as follows:

= (Sales revenue - other operating cost - depreciation) x tax rate of 25%

= ($ 13,000 - $ 6,000 - $ 4,000) x 25%

= $ 750

So, the year 1 cash flow will be as follows:

= ($ 13,000 - $ 6,000 - $ 4,000 - $ 750) + $ 4,000

= $ 6,250

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