Question

Hobart Industries is trying to estimate its first-year operating cash flow (at t = 1) for a proposed project. The financial staff has collected the following Information:
Projected sales $3,000,000
Operating costs 1,200,000
Depreciation 450,000
Interest expense 330,000
The company faces a 40% tax rate, what is the project's operating cash flow for the first year (t -1)?
a. $810,000.
b. $1,080,000.
c. $1,500,000.
d. $1,800,000.
e. $1,260,000.

Answer 1

Answer:

e. $1,260,000

Explanation:

The project's operating cash flow is calculated below;

Projected sales $3,000,000

Less: operating cost ($1,200,000)

Less: depreciation ($450,000)

Operating income before taxes

$1,350,000

Less: 40% taxes ($540,000)

Operating income after taxes.

$810,000

Add: back depreciation $450,000

Operating cash flow $1,260,000