As assistant to the CFO of Boulder Inc., you must estimate the Year 1 cash flow for a project with the following data: Sales revenues $13,000
Depreciation $4,000
Other operating costs $6,000
Tax rate 35.0%

What is the Year 1 cash flow?
a. $6,962
b. $5,950
c. $7,438
d. $5,177
e. $7,378

$5,950

Explanation:

Boulder incorporation reported the following data for year 1

Sales revenue= $13,000

Depreciation= $4,000

Other operating costs= $6,000

Tax rate= 35%

The first step is to calculate the EBIT

= sales revenue-operating costs-depreciation

= $13,000-$6,000-$4,000

= $3,000

Therefore, the cash flow for year 1 can be calculated as follows

= 3,000×35/100

= 3,000×0.35

= 1,050

= 3,000-1,050

= 1,950

Cash flow= 4,000+1,950

= $5,950

Hence the cash flow for year 1 is $5,950