Taylor Inc.,the company you work for,is considering a new project whose data are shown below.What is the project's Year 1 cash flow? $$\begin{array} { l r }
\text { Sales revenues, each year) } & \$ 62,000 \
\text { Depreciation} & \$8,000\
\text { Other operating costs } & \$ 25,000 \
\text { Interest expense } & \$8,000 \
\text { Tax rate } & 35.0 \%
\end{array}$$
A)$25,816
B)$27,175
C)$28,534
D)$29,960
E)$31,458

Question

Taylor Inc.,the company you work for,is considering a new project whose data are shown below.What is the project's Year 1 cash flow? $$\begin{array} { l r } 
\text { Sales revenues, each year) } & \$ 62,000 \
\text { Depreciation} & \$8,000\
\text { Other operating costs } & \$ 25,000 \
\text { Interest expense } & \$8,000 \
\text { Tax rate } & 35.0 \%
\end{array}$$
A)$25,816
B)$27,175
C)$28,534
D)$29,960
E)$31,458

Quizplus · Accepted Answer

The Year 1 cash flow can be calculated by subtracting the operating costs, interest expense and taxes from the sales revenue, and adding back depreciation:
Year 1 cash flow = Sales revenue - Operating costs - Interest expense - Taxes + Depreciation
Year 1 cash flow = $62,000 - $25,000 - $8,000 - (35% x $29,000) + $8,000
Year 1 cash flow = $27,175

Therefore, the best choice is B.

Taylor Inc A)$25,816 B)$27,175 C)$28,534 D)$29,960 E)$31,458

Taylor Inc A)$25,816
B)$27,175
C)$28,534
D)$29,960
E)$31,458