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?

$\begin{array}{l}
\begin{array} { l }
\text { Sales revenues } \
\text { Depreciation}\
\text { Other operating costs}\
\text { Interest expense }\
\text { Tax rate}
\end{array}
\begin{array} { l }
\$ 62,500 \
\$ 8,000 \
\$ 25,000 \
\$ 8,000\
35.0\%
\end{array}
\end{array}$

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?

$\begin{array}{l}
\begin{array} { l } 
\text { Sales revenues } \
\text { Depreciation}\
\text { Other operating costs}\
\text { Interest expense }\
\text { Tax rate}
\end{array}
\begin{array} { l } 
\$ 62,500 \
\$ 8,000 \
\$ 25,000 \
\$ 8,000\
35.0\%
\end{array}
\end{array}$

Quizplus · Accepted Answer

This problem is a bit harder than some of the other ones because it provides information on interest, and some students might incorrectly include it as an input. We like this wrinkle because it's important for students to know not to include financing costs in the cash flows.
 
$\begin{array}{l}
\begin{array} { l } 
\text { Sales revenues }& \
\text { - Operating costs (excl. deprec.) }&\
\text { - Depreciation }&\
\text { Operating income (EBTT) }& \
\text { - Taxes }&\text { Rate }=35 \%\
\text { After-tax EBIT }&\
\text { $ + $ Depreciation }&\
\text { Cash flow. Year 1 }&
\end{array}
\begin{array} { l } 
\$ 62,500 \
25,000 \
8,000 \
\$ 29,500 \
10,325\
\$ 19,175 \
\$ 8,000 \
\$ 27,175
\end{array}
\end{array}$

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