Question

2. As assistant to the CFO of Creative Solutions Inc., you must estimate the Year 1 cash flow for a project with the following data. What is the Year 1 cash flow (Operating Cash Flow)? Sales revenues Depreciation Other operating costs Tax rate a. $33,030 b. $36,333 $170,000 $50,000 $130,000 36% c. $43,600 d. $45,780 e. $48,069

Answer 1

Answer is $43,600

Sales Revenues = $170,000
Other Operating Costs = $130,000
Depreciation = $50,000
Tax Rate = 0.36

Operating Cash Flow = (Sales Revenues - Other Operating Costs) * (1 - Tax Rate) + Tax Rate * Depreciation
Operating Cash Flow = ($170,000 - $130,000) * (1 - 0.36) + 0.36 * $50,000
Operating Cash Flow = $40,000 * 0.64 + 0.36 * $50,000
Operating Cash Flow = $43,600