Question

Suppose that Tomorrowland Speedway Incorporated is estimating cash flows for a new project.  The projections for the first year are as follows:

Sales Revenue	$400,000
Cost of Goods	40% of sales
Other expenses (excluding depreciation)	18% of sales
Depreciation	$25,000
Investment in NWC	$11,000
Investment in Gross PPE	$27,500
Cash flow from side effects	-$18,000
Interest Payment on Debt	$12,000

If the tax rate facing the firm is 34%, what is the project cash flow for the first year?

	$62,880
	$54,960
	$98,880
	$79,380
	$44,400

Answer 1

Sales revenue	$         4,00,000
Cost of goods sold ($400000*0.40)	$         1,60,000
Other expenses ($400000*0.18)	$             72,000
Depreciation	$             25,000
Interest expenses	$             12,000
Income Before tax	$         1,31,000
Tax At 34%	$             44,540
Net Income	$             86,460
Add: Depreciation	$             25,000
Operating cash flow	$         1,11,460
Less:
Investment in NWC	$             11,000
Investment in Gross PPE	$             27,500
Cash flow from side effects	$             18,000
Net Cash Flow	$             54,960