Question

VR Corporation has the opportunity to invest in a new project, the details of which are shown below. What is the Year 1 cash flow for the project?

Sales revenues, each year $42,500 Depreciation $10,000 Other operating costs $17,000 Interest expense $4,000 Tax rate 25.0%

Answer 1

$ 21,625

The interest being a financial cost is ignored as it will be considered while calculating WACC

The calculation of Free Cash Flow is shown below

		Amount in $
	Sales Revenue	$                           42,500
Less	Other operating cost	$                         (17,000)
	Earnings Before Depreciation and Taxes	$                           25,500
Less	Depreciation	$                         (10,000)
	Earnings Before Taxes	$                           15,500
Less	Taxes @ 25%	$                           (3,875)
	Earnings After Taxes	$                           11,625
add	Depreciation	$                           10,000
	Cash Inflow	$                           21,625