company, RMU Inc., is considering a new project whose data are shown below.What is the project's Year 1 cash flow?
Sales revenues………………$22,250
Depreciation ………………..$ 8,000
Other operating costs ……….$12,000
Tax rate …………………….. 35.0%
A)$ 8,903
B)$ 9,179
C)$ 9,463
D)$ 9,746
E)$10,039

Question

Quizplus · Accepted Answer

Year 1 cash flow can be calculated as follows:
Sales revenues - Other operating costs = Operating income
$22,250 - $12,000 = $10,250
Operating income + Depreciation = Earnings before taxes (EBT)
$10,250 + $8,000 = $18,250
EBT x Tax rate = Taxes
$18,250 x 0.35 = $6,387.50
EBT - Taxes = Net income
$18,250 - $6,387.50 = $11,862.50
Net income + Depreciation = Year 1 cash flow
$11,862.50 + $8,000 = $19,862.50
Therefore, the Year 1 cash flow is $9,463 (closest to option C).

Company, RMU Inc